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The Tax Elasticity of Corporate Debt

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Author Info

  • Ruud A. de Mooij

Abstract

Although the empirical literature has long struggled to identify the impact of taxes on corporate financial structure, a recent boom in studies offers ample support for the debt bias of taxation. Yet, studies differ considerably in effect size and reveal an equally large variety in methodologies and specifications. This paper sheds light on this variation and assesses the systematic impact on the size of the effects. We find that, typically, a one percentage point higher tax rate increases the debt-asset ratio by between 0.17 and 0.28. Responses are increasing over time, which suggests that debt bias distortions have become more important.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/95.

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Length: 27
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/95

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Related research

Keywords: Corporate sector; Corporate taxes; Economic models; tax elasticity; capital structure; long-term debt; external debt; short-term debt; marginal tax rates; debt ratios; marginal tax rate; debt policy; debt ratio; average tax rate; tax journal; national tax journal; international tax; tax countries; tax differences; public finance; tax return; external borrowing; low-tax countries; personal taxes; tax planning; high-tax countries; tax deferral; tax income; deferred taxes; uniform tax; long-term loans; short term debt; business taxation; capital gains taxes; foreign tax credits; income taxes; debt relief; substantial debt; business income tax; dividend payments; tax reform; excess foreign tax credits; ratio of debt; corporate tax planning; domestic tax; corporate income tax; international debt; tax rate differences; taxable profits; foreign tax; tax savings; personal income taxes; debt maturity; tax burdens; tax revenues; debt-equity; federal taxes; capital gains tax; effects of taxes; substitution effect; tax reforms; home country; debt structure; tax measures; corporate tax rate;

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References

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  1. Kane, Alex & Marcus, Alan J. & McDonald, Robert L., 1985. "Debt Policy and the Rate of Return Premium to Leverage," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 479-499, December.
  2. Jeffrey MacKie-Mason, 1988. "Do Taxes Affect Corporate Financing Decisions?," NBER Working Papers 2632, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Lourdes Jerez Barroso & Fidel Picos Sánchez, 2012. "La neutralidad financiera en el Impuesto sobre Sociedades: Microsimulación de las opciones de reforma para España," Hacienda Pública Española, IEF, vol. 203(4), pages 23-56, December.
  2. R. Miniaci & M. Parisi & P. Panteghini, 2014. "Debt shifting in Europe," International Tax and Public Finance, Springer, vol. 21(3), pages 397-435, June.
  3. Lars P. Feld & Jost Henrich Heckemeyer & Michael Overesch, 2011. "Capital Structure Choice and Company Taxation: A Meta-Study," CESifo Working Paper Series 3400, CESifo Group Munich.
  4. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
  5. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies," OECD Economics Department Working Papers 966, OECD Publishing.
  6. Jürgen Antony & Michiel Bijlsma & Adam Elbourne & Marcel Lever & Gijsbert Zwart, 2012. "Financial transaction tax: review and assessment," CPB Discussion Paper 202, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Serena Fatica & Thomas Hemmelgarn & Gaetan Nicodeme, 2013. "The Debt-Equity Tax Bias: Consequences and Solutions," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 5-18.
  8. Sinha, Pankaj & Bansal, Vishakha, 2013. "Capital structure puzzle: the interrelationship between leverage, taxes and other micro economic factors," MPRA Paper 49878, University Library of Munich, Germany, revised 17 Sep 2013.

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  1. European Public Finance (ECON-O-403)

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