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The Tax Elasticity of Corporate Debt; A Synthesis of Size and Variations

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  • Ruud A. de Mooij

Abstract

Although the empirical literature has long struggled to identify the impact of taxes on corporate financial structure, a recent boom in studies offers ample support for the debt bias of taxation. Yet, studies differ considerably in effect size and reveal an equally large variety in methodologies and specifications. This paper sheds light on this variation and assesses the systematic impact on the size of the effects. We find that, typically, a one percentage point higher tax rate increases the debt-asset ratio by between 0.17 and 0.28. Responses are increasing over time, which suggests that debt bias distortions have become more important.

Suggested Citation

  • Ruud A. de Mooij, 2011. "The Tax Elasticity of Corporate Debt; A Synthesis of Size and Variations," IMF Working Papers 11/95, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/95
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    1. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-1493, December.
    2. Kane, Alex & Marcus, Alan J. & McDonald, Robert L., 1985. "Debt Policy and the Rate of Return Premium to Leverage," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 479-499, December.
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    Cited by:

    1. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    2. Sinha, Pankaj & Bansal, Vishakha, 2013. "Capital structure puzzle: the interrelationship between leverage, taxes and other micro economic factors," MPRA Paper 49878, University Library of Munich, Germany, revised 17 Sep 2013.
    3. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies," OECD Economics Department Working Papers 966, OECD Publishing.
    4. repec:eee:riibaf:v:42:y:2017:i:c:p:480-495 is not listed on IDEAS
    5. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    6. Jürgen Antony & Michiel Bijlsma & Adam Elbourne & Marcel Lever & Gijsbert Zwart, 2012. "Financial transaction tax: review and assessment," CPB Discussion Paper 202, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Steve Bond & Kyung Yeon Ham & Giorgia Maffini & Andrea Nobili & Giacomo Ricotti, 2016. "Regulation, tax and capital structure: evidence from administrative data on Italian banks," Questioni di Economia e Finanza (Occasional Papers) 361, Bank of Italy, Economic Research and International Relations Area.
    8. Serena Fatica & Thomas Hemmelgarn & Gaëtan Nicodème, 2013. "The Debt-Equity Tax Bias: Consequences and Solutions," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 5-18.
    9. Hebous, Shafik & Ruf, Martin, 2017. "Evaluating the effects of ACE systems on multinational debt financing and investment," Journal of Public Economics, Elsevier, vol. 156(C), pages 131-149.
    10. Lourdes Jerez Barroso & Fidel Picos Sánchez, 2012. "La neutralidad financiera en el Impuesto sobre Sociedades: Microsimulación de las opciones de reforma para España," Hacienda Pública Española, IEF, vol. 203(4), pages 23-56, December.
    11. R. Miniaci & M. Parisi & P. Panteghini, 2014. "Debt shifting in Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 397-435, June.

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