Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data

Roger Gordon and Young Lee

No 7433, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H25 H52 (search for similar items in EconPapers)
Date: 1999-12
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-pub
Note: CF PE
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Citations: View citations in EconPapers (15)

Published as Gordon, Roger H. and Young Lee. "Do Taxes Affect Corporate Debt Policy? Evidence From U.S. Corporate Tax Return Data," Journal of Public Economics, 2001, v82(2,Nov), 195-224.

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