Taxes and Corporate Financing Decisions – Evidence from the Belgian ACE Reform

Nils aus dem Moore

No 533, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: We contribute to the empirical literature on the debt bias of corporate income taxation through a micro-econometric evaluation of the so-called ACE corporate tax reform in Belgium based on firm-level accounting data. We interpret the tax reform that came into effect in January 2006 as an economic quasi experiment. We identify its causal impact on the leverage ratio of Belgian corporations by means of a difference-in-differences (DiD) approach, using corporations from the UK as comparison group. Our results document that the ACE reform led to a systematic pattern of heterogeneous effects on the capital structure of Belgian corporations, as the estimated reduction of the leverage ratio is most pronounced for big firms. Estimation of quantile treatment effects further reveals that reform effects get monotonically larger across the distribution of firm leverage. Finally, we provide evidence of sectoral heterogeneity with significant effects observed for capital-intensive, but not for labor-intensive sectors.

Keywords: corporate income taxation; financial structure; debt bias; allowance for corporate equity; difference-in-differences (search for similar items in EconPapers)
JEL-codes: G32 G38 H22 H25 H32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:533

DOI: 10.4419/86788610

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