Personal Taxation of Capital Income and the Financial Leverage of Firms

Frank Fossen and Martin Simmler

EconStor Open Access Articles and Book Chapters, 2016, vol. 23, issue 1, 48-81

Abstract: Tax competition for capital has led to a trend where many countries levy lower taxes on interest income, often introducing differential taxation between interest and business income. This study analyzes the effect on firm debt usage. We exploit Germany's 2009 tax reform, which introduced a final withholding tax on interest income with a flat rate 18 percentage points below the unchanged tax rate on income from unincorporated businesses, as a quasi-experiment. The results, based on firm-level panel data, indicate that firms increase their leverage when the tax rate on interest income decreases, albeit to a small degree.

Keywords: Income taxation; Capital taxation; Financial structure; Leverage; Matching (search for similar items in EconPapers)
JEL-codes: G32 H24 H25 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Personal taxation of capital income and the financial leverage of firms (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:157758

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