Pouring Oil on Fire: Interest Deductibility and Corporate Debt
IMF Working Papers, December 7, 2018
Source details
- Canonical URL
- Pouring Oil on Fire: Interest Deductibility and Corporate Debt
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Bibliographic details
- Authors: Pietro Dallari, Nicolas End, Fedor Miryugin, Alexander F. Tieman, Reza Yousefi
- Published: December 7, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484389102.001
Objective and data
- Investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector.
- Uses a large firm-level dataset.
- Authors: Pietro Dallari, Nicolas End, Fedor Miryugin, Alexander F. Tieman, Reza Yousefi.
- Publication date: December 7, 2018.
- Series: Working Paper No. 2018/257; Issue: 257; Volume: 2018; Pages: 42.
- DOI: https://doi.org/10.5089/9781484389102.001
- ISBN: 9781484389102
- ISSN: 1018-5941
Main findings
- Debt bias (tax incentives favoring debt over equity) is a significant driver of leverage in the NFC sector.
- The effect of debt bias accounts for about a quarter of leverage.
- Debt bias affects both small and medium-sized enterprises (SMEs) and larger firms.
Heterogeneity in effects
- The strength of the debt bias effect differs with:
- firm size,
- availability of collateral,
- income and income volatility,
- cash flow,
- capital intensity.
Policy implications and recommendations
- Leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage.
- Reducing NFC leverage would lower economic risks posed by leverage.
Subject headings and keywords (as listed)
- Subject: Capital productivity, Commodities, Corporate income tax, Currencies, Debt bias, Financial statements, Money, Oil, Production, Public financial management (PFM), Tax policy, Taxes
- Keywords: bias coefficient estimate, Capital productivity, coefficient estimate, copyright Page, corporate debt, Corporate Income Tax, Currencies, debt, Debt Bias, debt contract, debt firm, effect of debt bias, estimates of debt bias, Europe, Financial statements, firm, Global, incurred debt, interest deductibility, Leverage, leverage decision, leverage ratio, long-term debt, Micro data, Oil, quantile regression, SME, SMEs, strength of debt bias, Tax Policy, WP
Source: IMF Working Papers — "Pouring Oil on Fire: Interest Deductibility and Corporate Debt", Pietro Dallari, Nicolas End, Fedor Miryugin, Alexander F. Tieman, Reza Yousefi, December 7, 2018.
Content in this bundle
- Pouring Oil on Fire: Interest Deductibility and Corporate Debt, WP/18/257, December 2018