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Taxes and the Efficiency Costs of Capital Distortions

Listed author(s):
  • 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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-10/cesifo1_wp2431.pdf
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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
Handle: RePEc:ces:ceswps:_2431
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