Arbeitspapier

Taxes depress corporate borrowing: Evidence from private firms

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We re-examine the relation between taxes and corporate leverage, using variation in state corporate income tax rates. In contrast with prior research, we document that corporate leverage increases following tax cuts for both privately held and publicly listed firms. We use an estimated dynamic equilibrium model to show that tax cuts result in lower default spreads and more distant default thresholds. These effects outweigh the loss of benefits from the interest tax deduction and lead to higher leverage, especially for privately held firms. Overall, debt tax shields appear to be a secondary capital structure consideration.

Language: Englisch

Bibliographic citation: Series: IHS Working Paper ; No. 32

Classification: Wirtschaft

Event: Geistige Schöpfung

(who): Ivanov, Ivan T.
Pettit, Luke
Whited, Toni Marion

Event: Veröffentlichung

(who): Institut für Höhere Studien - Institute for Advanced Studies (IHS)

(where): Vienna

(when): 2021

Handle: http://hdl.handle.net/10419/235108

Last update: 10.03.2025, 11:42 AM CET

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Object type

Arbeitspapier

Associated

Ivanov, Ivan T.
Pettit, Luke
Whited, Toni Marion
Institut für Höhere Studien - Institute for Advanced Studies (IHS)

Time of origin

2021

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