The Tax Elasticity of Corporate Debt: A Synthesis of Size and Variations
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Summary:
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.
Series:
Working Paper No. 2011/095
Subject:
Average effective tax rate Corporate income tax Marginal effective tax rate Tax arrears management Tax elasticity
English
Publication Date:
April 1, 2011
ISBN/ISSN:
9781455253340/1018-5941
Stock No:
WPIEA2011095
Pages:
27
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