The Tax Elasticity of Corporate Debt: A Synthesis of Size and Variations

Ruud de Mooij

No 2011/095, IMF Working Papers from International Monetary Fund

Abstract: Although the empirical literature has long struggled to identify the impact of taxes on corporate financial structure, a recent boom in studies offers ample support for the debt bias of taxation. Yet, studies differ considerably in effect size and reveal an equally large variety in methodologies and specifications. This paper sheds light on this variation and assesses the systematic impact on the size of the effects. We find that, typically, a one percentage point higher tax rate increases the debt-asset ratio by between 0.17 and 0.28. Responses are increasing over time, which suggests that debt bias distortions have become more important.

Keywords: WP; debt-asset ratio; capital structure; intracompany debt; tax shield; CIT rate (search for similar items in EconPapers)
Pages: 27
Date: 2011-04-01
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Citations: View citations in EconPapers (48)

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