The Credit Channel of Capital Tax Policy

Arbeitspapier

A neoclassical growth model is augmented by a corporate sector, financial intermediation, and a set of tax rates. In this setting, capital structure is determined by the interplay between an advantage of debt finance resulting from the tax system and a disadvantage resulting from asymmetric information and the entailed agency costs. Effects of capital tax reforms are investigated with a special focus on the credit channel that operates through the finance decision of firms. The theoretical part of the article derives which financial and real effects of private and corporate income tax policies can be expected. Using a calibration with U.S. data, the applied part demonstrates that tax cuts cause significant adjustments of capital structure. Nevertheless, the credit channel creates relatively small effects of tax reforms on consumption, investment, and growth.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeitrag ; No. 368

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policies and Behavior of Economic Agents: General ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Fiscal Policy ; Financial Markets and the Macroeconomy
• Subject: Tax Reform ; Corporate Finance ; Agency Costs ; Economic Growth

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strulik, Holger
• Event: Veröffentlichung
• (who): Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
• (where): Hannover
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/22480
• Last update: 10.03.2025, 11:42 AM CET