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The Tax Elasticity System of Corporate Debt

Author : Ruud A. de Mooij

Publisher :

Page : 27 pages

File Size : 11,21 MB

Release : 2011

Category : Corporations

ISBN :

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Book Description

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.



The Tax Elasticity of Corporate Debt

Author : Ruud A. de Mooij

Publisher : International Monetary Fund

Page : 29 pages

File Size : 27,64 MB

Release : 2011-04-01

Category : Business & Economics

ISBN : 1455253340

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Book Description

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.



Debt, Taxes and Corporate Restructuring

Author : John B. Shoven

Publisher : Brookings Institution Press

Page : 223 pages

File Size : 50,47 MB

Release : 2012-01-01

Category : Business & Economics

ISBN : 0815714262

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Book Description

The boom in corporate restructuring, accompanied by large increases in debt finance, was one of the most important developments in the U.S. economy in the 1980s. Financial and tax specialists analyze how the U.S. tax system-especially in its bias toward debt financing-has affected corporate financial decisions and influenced the recent wave of corporate restructuring. The authors evaluate the hypothesis that the rise in the cost of capital during the 1980s helped stimulate the surge in corporate takeovers. They analyze the effect that changes in tax laws and in the volume of government debt have had on corporate financial decisions. The authors examine how recent financial innovations have blurred the distinction between debt and equity finance.



Curbing Corporate Debt Bias

Author : Ruud A. de Mooij

Publisher : International Monetary Fund

Page : 20 pages

File Size : 49,5 MB

Release : 2017-02-10

Category : Business & Economics

ISBN : 1475578296

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Book Description

Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.



Corporate Capital Structures in the United States

Author : Benjamin M. Friedman

Publisher : University of Chicago Press

Page : 404 pages

File Size : 49,49 MB

Release : 2009-05-15

Category : Business & Economics

ISBN : 0226264238

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Book Description

The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.



Tax Policy, Leverage and Macroeconomic Stability

Author : International Monetary Fund. Fiscal Affairs Dept.

Publisher : International Monetary Fund

Page : 78 pages

File Size : 21,33 MB

Release : 2016-12-10

Category : Business & Economics

ISBN : 1498345204

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Book Description

Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.



Taxing Corporate Income in the 21st Century

Author : Alan J. Auerbach

Publisher : Cambridge University Press

Page : 401 pages

File Size : 40,62 MB

Release : 2007-04-16

Category : Business & Economics

ISBN : 1139464515

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Book Description

This book was first published in 2007. Most countries levy taxes on corporations, but the impact - and therefore the wisdom - of such taxes is highly controversial among economists. Does the burden of these taxes fall on wealthy shareowners, or is it passed along to those who work for, or buy the products of, corporations? Can a country with high corporate taxes remain competitive in the global economy? This book features research by leading economists and accountants that sheds light on these and related questions, including how taxes affect corporate dividend policy, stock market value, avoidance, and evasion. The studies promise to inform both future tax policy and regulatory policy, especially in light of the Sarbanes-Oxley Act and other actions by the Securities and Exchange Commission that are having profound effects on the market for tax planning and auditing in the wake of the well-publicized accounting scandals in Enron and WorldCom.



Taxation and Corporate Debt

Author : Mr.Jost Heckemeyer

Publisher : International Monetary Fund

Page : 29 pages

File Size : 27,32 MB

Release : 2013-10-29

Category : Business & Economics

ISBN : 1484366794

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Book Description

This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks, using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks, we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast, the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holds for the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.



Pouring Oil on Fire: Interest Deductibility and Corporate Debt

Author : Pietro Dallari

Publisher : International Monetary Fund

Page : 42 pages

File Size : 29,30 MB

Release : 2018-12-07

Category : Business & Economics

ISBN : 1484389107

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Book Description

This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage. The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.



Debt Bias and Other Distortions

Author : International Monetary Fund. Fiscal Affairs Dept.

Publisher : International Monetary Fund

Page : 41 pages

File Size : 45,77 MB

Release : 2009-12-06

Category : Business & Economics

ISBN : 1498335926

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Book Description

Tax distortions are likely to have encouraged excessive leveraging and other financial market problems evident in the crisis. These effects have been little explored, but are potentially macro-relevant. Taxation can result, for example, in a net subsidy to borrowing of hundreds of basis points, raising debt-equity ratios and vulnerabilities from capital inflows. This paper reviews key channels by which tax distortions can significantly affect financial markets, drawing implications for tax design once the crisis has passed.