The Influence of Firms' Financial Policy on Tax Reform

John P Hutton and Turalay Kenc

Oxford Economic Papers, 1998, vol. 50, issue 4, 663-84

Abstract: The effectiveness of proposed reforms to the tax system intended to stimulate investment depends on how capital structure affects corporate behavior. A dynamic general equilibrium model, calibrated for the United Kingdom, is used to investigate the difference between three models of financial structure, including one of endogenous structure motivated by agency theory. It is shown that the difference in predicted effects can be significant and that the impact of the reform on the marginal source of funds is crucial. Copyright 1998 by Royal Economic Society.

Date: 1998
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