The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions
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Summary:
This paper uses U.S. panel data to estimate the effect of expected effective corporate tax rates on firm’s leverage. The paper directly estimates expected corporate tax rates using rational expectations. The estimated measures of the expected effective tax rates of firms are related to a continuous measure of incremental debt financing. The paper finds that expected effective tax rates are significantly and positively related to a higher level of debt financing. Simulations suggest that debt issues would double if firms were unable to shield profits and actually faced the statutory tax rate.
Series:
Working Paper No. 1997/046
Subject:
Average effective tax rate Corporate income tax Effective tax rate Labor Tax allowances Tax policy Taxes Wages
Notes:
Also published in Staff Papers, Vol. 44, No. 4, December 1997.
English
Publication Date:
April 1, 1997
ISBN/ISSN:
9781451973969/1018-5941
Stock No:
WPIEA0461997
Pages:
32
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