Working Paper: NBER ID: w7433
Authors: Roger H. Gordon; Young Lee
Abstract: Past attempts to measure the impact of taxes on corporate debt policy have focused on larger firms. Given that the top statutory corporate tax rate has varied little in recent years, tax incentives vary among these firms, almost entirely due to current or prospective tax losses. Results are inevitably mixed, given that firms with losses or nondebt tax shields may have different propensities to borrow even ignoring taxes. This paper uses US Statistics of Income balance sheet data on all corporations, to compare the debt policies of firms of different sizes. Given the progressivity in the corporate tax schedule, small firms face very different tax rates than larger firms. Relative tax rates have also changed frequently over time. Our results suggest that taxes have had a strong and statistically significant effect on debt levels. In particular, the difference in corporate tax rates currently faced by the largest vs. the smallest firms (35% vs. 15%) is forecast to induce larger firms to finance an additional 8% of their assets with debt, compared with smaller firms.
Keywords: No keywords provided
JEL Codes: H25; H52; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taxes (H29) | Corporate Debt Policy (G32) |
| Corporate Tax Rates (H29) | Corporate Debt Policy (G32) |
| Large Firms (L25) | Corporate Debt Policy (G32) |
| Small Firms (L25) | Corporate Debt Policy (G32) |