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Taxation and Corporate Debt: Are Banks any Different?

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  • Jost Heckemeyer
  • Ruud A. de Mooij

Abstract

This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks, using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks, we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast, the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holds for the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/221.

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Length: 29
Date of creation: 29 Oct 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/221

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Keywords: Taxation; Corporate sector; Debt; Corporate taxes; Banks; Nonbank financial sector; debt bias; leverage; non-financial firms; quantile regressions; bank size; capital structure; banking; tax sensitivity; tax elasticity; corporate income tax; bank capital; tax reforms; bank of japan; banking sector; measure of profitability; direct tax; capital requirement; bank assets; tax return; retained earnings; bank regulation; tax systems; marginal tax rate; banking crises; interest payments;

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  1. Barrell, Ray & Davis, E. Philip & Karim, Dilruba & Liadze, Iana, 2010. "Bank regulation, property prices and early warning systems for banking crises in OECD countries," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2255-2264, September.
  2. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2011. "Capital structure choice and company taxation: A meta-study," ZEW Discussion Papers 11-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Gropp, Reint & Heider, Florian, 2009. "The determinants of bank capital structure," Working Paper Series 1096, European Central Bank.
  4. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
  5. Murray Z. Frank & Vidhan K. Goyal, 2009. "Capital Structure Decisions: Which Factors Are Reliably Important?," Financial Management, Financial Management Association International, vol. 38(1), pages 1-37, 03.
  6. Gordon, Roger H. & Lee, Young, 2001. "Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data," Journal of Public Economics, Elsevier, vol. 82(2), pages 195-224, November.
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