The Tax Elasticity of Corporate Debt
AbstractAlthough 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/95.
Date of creation: 01 Apr 2011
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