{
  "title": "Curbing Corporate Debt Bias",
  "publication": "IMF Working Papers, January 30, 2017",
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  "summary": "Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Tax provisions favoring corporate debt over equity finance (\"debt bias\") are identified as a risk to financial stability.\n- The paper examines whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk.\n- Authors: Ruud A. de Mooij, Shafik Hebous.\n- Date: January 30, 2017."
    },
    {
      "heading": "Key findings",
      "content": "- Rules targeted at related party borrowing (the majority of today’s rules):\n  - Have no significant impact on debt bias (which relates to third-party borrowing).\n  - Have no effect on broader indicators of firm financial distress.\n- Rules applying to all debt (as opposed to only related-party debt):\n  - Reduce the debt-asset ratio in an average company by 5 percentage points.\n  - Reduce the probability for a firm to be in financial distress by 5 percent.\n- Heterogeneity:\n  - Debt ratios are more responsive to thin capitalization rules in industries characterized by a high share of tangible assets."
    },
    {
      "heading": "Methodological and thematic notes",
      "content": "- Focus: interaction between thin-capitalization rules and corporate capital structure (debt-asset ratio) and financial distress indicators.\n- Policy instrument examined: thin-capitalization rules that restrict interest deductibility beyond a certain amount, with variation in scope (related-party only vs. all debt)."
    },
    {
      "heading": "Policy implications / Recommendations (implied by findings)",
      "content": "- Broad-based thin-capitalization rules that apply to all debt appear effective in lowering corporate leverage and reducing firm financial distress.\n- Narrow rules targeting only related-party borrowing are unlikely to address the broader debt bias problem or reduce financial stability risks tied to third-party borrowing.\n- Consideration of industry structure (share of tangible assets) is important when assessing the potential impact of thin-capitalization rules.\n\nSource: \"Curbing Corporate Debt Bias\", Ruud A. de Mooij and Shafik Hebous, January 30, 2017.\n\n---\n\n Content in this bundle\n\n- Curbing Corporate Debt Bias: Do Limitations to Interest Deductibility Work?\n  - Curbing Corporate Debt Bias: Do Limitations to Interest Deductibility Work? (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Curbing Corporate Debt Bias: Do Limitations to Interest Deductibility Work? (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/01/30/curbing-corporate-debt-bias-44605"
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    "Authors: Ruud A. de Mooij, Shafik Hebous",
    "Published: January 30, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475573053.001",
    "Tax provisions favoring corporate debt over equity finance (\"debt bias\") are identified as a risk to financial stability.",
    "The paper examines whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk.",
    "Authors: Ruud A. de Mooij, Shafik Hebous.",
    "Date: January 30, 2017.",
    "Rules targeted at related party borrowing (the majority of today’s rules):",
    "Rules applying to all debt (as opposed to only related-party debt):",
    "Heterogeneity:",
    "Focus: interaction between thin-capitalization rules and corporate capital structure (debt-asset ratio) and financial distress indicators.",
    "Policy instrument examined: thin-capitalization rules that restrict interest deductibility beyond a certain amount, with variation in scope (related-party only vs. all debt).",
    "Broad-based thin-capitalization rules that apply to all debt appear effective in lowering corporate leverage and reducing firm financial distress.",
    "Narrow rules targeting only related-party borrowing are unlikely to address the broader debt bias problem or reduce financial stability risks tied to third-party borrowing.",
    "Consideration of industry structure (share of tangible assets) is important when assessing the potential impact of thin-capitalization rules.",
    "**Curbing Corporate Debt Bias: Do Limitations to Interest Deductibility Work?**"
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      "title": "Curbing Corporate Debt Bias: Do Limitations to Interest Deductibility Work?",
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