Corporate Tax Reforms and Financial Choices: An Empirical Analysis

Maria Elena Bontempi (), Silvia Giannini and Roberto Golinelli ()
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Silvia Giannini: University of Bologna

Giornale degli Economisti, 2005, vol. 64, issue 2-3, pages 271-294

Abstract: This paper assesses the effects that two different types of corporate tax reforms, recently implemented in Italy by two different Governments, have had on the debt choices of companies, In order to do so, we combine the information provided by a micro-simulation corporate tax-model, with an empirical model of companies' financial choices (a modified pecking order model), and apply this analytical framework to a panel of Italian manufacturing companies. The main results suggest that: (a) the tax system affects corporate leverage both through the relative cost of debt capital, and through cash flow; (b) the first reform, which operated mainly by reducing the relative cost of equity capital and was less costly for the Government, turns out to be more effective in reducing corporate leverage.

Keywords: corporate tax reform; fiscal microsimulation; corporate leverage; estimation of partial effects (search for similar items in EconPapers)
JEL-codes: G32 H32 C23 C11 (search for similar items in EconPapers)
Date: 2005
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