Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data
AbstractPast attempts to measure the impact of taxes on corporate debt policy have focused on larger firms. Given that the top statutory corporate tax rate has varied little in recent years, tax incentives vary among these firms, almost entirely due to current or prospective tax losses. Results are inevitably mixed, given that firms with losses or nondebt tax shields may have different propensities to borrow even ignoring taxes. This paper uses US Statistics of Income balance sheet data on all corporations, to compare the debt policies of firms of different sizes. Given the progressivity in the corporate tax schedule, small firms face very different tax rates than larger firms. Relative tax rates have also changed frequently over time. Our results suggest that taxes have had a strong and statistically significant effect on debt levels. In particular, the difference in corporate tax rates currently faced by the largest vs. the smallest firms (35% vs. 15%) is forecast to induce larger firms to finance an additional 8% of their assets with debt, compared with smaller firms.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7433.
Date of creation: Dec 1999
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Other versions of this item:
- 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.
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-12-21 (All new papers)
- NEP-CFN-1999-12-21 (Corporate Finance)
- NEP-FIN-1999-12-21 (Finance)
- NEP-PUB-1999-12-21 (Public Finance)
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