Interest Rates, Taxes and Corporate Financial Policies

Roger Gordon and Young Lee

National Tax Journal, 2007, vol. 60, issue 1, 65-84

Abstract: This paper investigates the combined effect of nominal interest rates and taxes on the use and maturity structure of corporate debt. The net tax gain from use of corporate debt is proportional to nominal interest rates, so that behavioral responses should be larger when interest rates are higher. For similar reasons, firms should shift towards more long–term debt as long–term rates rise relative to short–term rates. Our paper presents evidence consistent with both predictions, using corporate and personal tax return data from the U.S. Statistics of Income (SOI).

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:60:y:2007:i:1:p:65-84

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