The tax shield increases the interest rate

Marcel Fischer and Bjarne Astrup Jensen

Journal of Banking & Finance, 2024, vol. 161, issue C

Abstract: We study the general equilibrium implications of the corporate tax shield in a growth economy that taxes household income and firm profits and redistributes tax revenues. Our stylized model predicts that in general equilibrium the tax shield's reduction of the corporate after-tax borrowing rate is counteracted (but not fully eliminated) by an increase in the pre-tax rate.

Keywords: Tax shield; Interest rate; General equilibrium (search for similar items in EconPapers)
JEL-codes: E21 E23 G11 H23 H31 H32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:161:y:2024:i:c:s0378426624000165

DOI: 10.1016/j.jbankfin.2024.107096

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