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Taxes and the Efficiency Costs of Capital Distortions

Author

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  • Alfons J. Weichenrieder
  • Tina Klautke
  • Alfons Weichenrieder

Abstract

Tax neutrality towards alternative financing instruments for corporate investment is a ubiquitous demand in the political debate. At the same time, the literature is surprisingly silent about the magnitude of possible efficiency costs of a departure from tax neutrality. Against this background, the present paper discusses the theory of capital structure and provides backof-the-envelope calculations of the possible efficiency cost of a tax distortion of the debtequity decision.

Suggested Citation

  • Alfons J. Weichenrieder & Tina Klautke & Alfons Weichenrieder, 2008. "Taxes and the Efficiency Costs of Capital Distortions," CESifo Working Paper Series 2431, CESifo.
    • Handle: RePEc:ces:ceswps:_2431
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    References listed on IDEAS

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    More about this item

    Keywords

    debt-equity choice; capital structure; excess burden of taxation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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