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Taxes and the Efficiency Costs of Capital Distortions

  • Alfons Weichenrieder
  • Tina Klautke

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. Againstthis 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 debtequitydecision.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2431.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2431
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  7. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
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  9. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
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  23. Jack Mintz & Alfons Weichenrieder, 2005. "Taxation and the Financial Structure of German Outbound FDI," CESifo Working Paper Series 1612, CESifo Group Munich.
  24. Julian Alworth & Giampaolo Arachi, 2001. "The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms," International Tax and Public Finance, Springer, vol. 8(4), pages 353-376, August.
  25. Roger H. Gordon & Young Lee, 1999. "Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data," NBER Working Papers 7433, National Bureau of Economic Research, Inc.
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