{
  "title": "Tax Policy, Leverage and Macroeconomic Stability",
  "publication": "Policy Papers, October 12, 2016",
  "sourceUrl": "https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/tax-policy-leverage-and-macroeconomic-stability-pp5073",
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  "summary": "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 signific",
  "sections": [
    {
      "heading": "Overview",
      "content": "- The paper examines how tax distortions amplify risks to macroeconomic stability by encouraging excessive private leverage.\n- Defines “debt bias” as tax provisions favoring finance by debt rather than equity and notes it has increased leverage in both the household and corporate sectors.\n- States that debt bias is now widely recognized as a significant macroeconomic concern."
    },
    {
      "heading": "Findings and evidence",
      "content": "- Presents new evidence on the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis.\n- Reports that thin capitalization rules restricting interest deductibility have only partially addressed debt bias.\n- Reports that an allowance for corporate equity has generally proved effective in addressing debt bias."
    },
    {
      "heading": "Policy options and assessment",
      "content": "- Presents policy options to alleviate debt bias and assesses their effectiveness.\n- Identifies thin capitalization rules as only partially effective.\n- Identifies an allowance for corporate equity as generally effective."
    },
    {
      "heading": "Conclusion and implications",
      "content": "- Recommends that debt bias should feature prominently in countries’ tax reform plans in the coming years."
    },
    {
      "heading": "Subjects / Scope",
      "content": "- Borrowing\n- Corporate sector\n- Debt\n- Financial sector\n- Financial stability\n- Nonbank financial sector\n- Private sector\n- Tax policy\n\nSource: Tax Policy, Leverage and Macroeconomic Stability, October 12, 2016. Canonical URL: https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/tax-policy-leverage-and-macroeconomic-stability-pp5073\n\n---\n\n Content in this bundle\n\n- Tax Policy, Leverage and Macroeconomic Stability; IMF Policy Paper, October 7, 2016\n  - Tax Policy, Leverage and Macroeconomic Stability; IMF Policy Paper, October 7, 2016 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Tax Policy, Leverage and Macroeconomic Stability; IMF Policy Paper, October 7, 2016 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/tax-policy-leverage-and-macroeconomic-stability-pp5073"
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    "Published: October 12, 2016",
    "Series: Policy Papers",
    "The paper examines how tax distortions amplify risks to macroeconomic stability by encouraging excessive private leverage.",
    "Defines “debt bias” as tax provisions favoring finance by debt rather than equity and notes it has increased leverage in both the household and corporate sectors.",
    "States that debt bias is now widely recognized as a significant macroeconomic concern.",
    "Presents new evidence on the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis.",
    "Reports that thin capitalization rules restricting interest deductibility have only partially addressed debt bias.",
    "Reports that an allowance for corporate equity has generally proved effective in addressing debt bias.",
    "Presents policy options to alleviate debt bias and assesses their effectiveness.",
    "Identifies thin capitalization rules as only partially effective.",
    "Identifies an allowance for corporate equity as generally effective.",
    "Recommends that debt bias should feature prominently in countries’ tax reform plans in the coming years.",
    "Borrowing",
    "Corporate sector",
    "Debt",
    "Financial sector",
    "Financial stability",
    "Nonbank financial sector",
    "Private sector",
    "Tax policy",
    "**Tax Policy, Leverage and Macroeconomic Stability; IMF Policy Paper, October 7, 2016**"
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