Combatting debt bias in South African firms: The case for an allowance for corporate equity

Arbeitspapier

The problem of debt bias can be tackled through either disincentivizing the use of debt financing or incentivizing the use of equity financing. Considering the South African context - in which many firms are highly leveraged and the marginal effective tax rates for using debt financing are significantly lower than those for equity financing - this study explores the case for introducing an allowance for corporate equity. We show that while such a reform would significantly neutralize the incentives to invest across debt and equity financing, our static simulations - using the NT-SARS CIT-IRP5 panel - show that it would entail a significant revenue loss to the fiscus.

Object Details

• ISBN: 978-92-9256-644-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Working Paper ; No. 2019/10

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Business Taxes and Subsidies including sales and value-added (VAT) ; Fiscal Policies and Behavior of Economic Agents: Firm ; Fiscal and Monetary Policy in Development
• Subject: debt bias ; investment incentives ; corporate tax ; tax revenue ; South Africa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kari, Seppo ; Khoza, Londiwe ; Manjezi, Nangamso ; McNabb, Kyle
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2019

Further information

• DOI: doi:10.35188/UNU-WIDER/2019/644-9
• Handle: http://hdl.handle.net/10419/211238
• Last update: 10.03.2025, 11:44 AM CET