Effects of Tax Rate Changes on the Cost of Capital: The Case of Japanese Firms

Keiichi Kubota and Hitoshi Takehara

FinanzArchiv: Public Finance Analysis, 2007, vol. 63, issue 2, 163-185

Abstract: The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed for Japanese firms. Special emphasis is given to changes in statutory tax rates and provisions that allow firms to carry their losses forward.

Keywords: cost of capital; effective marginal tax rates in Japan; Miller equilibrium; Graham's simulation method; loss carry-forward (search for similar items in EconPapers)
JEL-codes: G31 H24 H25 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (6)

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DOI: 10.1628/001522107X220062

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