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The Debt Equity Tax Bias
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Book Synopsis Debt Bias and Other Distortions by : International Monetary Fund. Fiscal Affairs Dept.
Download or read book Debt Bias and Other Distortions written by International Monetary Fund. Fiscal Affairs Dept. and published by International Monetary Fund. This book was released on 2009-12-06 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tax distortions are likely to have encouraged excessive leveraging and other financial market problems evident in the crisis. These effects have been little explored, but are potentially macro-relevant. Taxation can result, for example, in a net subsidy to borrowing of hundreds of basis points, raising debt-equity ratios and vulnerabilities from capital inflows. This paper reviews key channels by which tax distortions can significantly affect financial markets, drawing implications for tax design once the crisis has passed.
Book Synopsis Curbing Corporate Debt Bias by : Ruud A. de Mooij
Download or read book Curbing Corporate Debt Bias written by Ruud A. de Mooij and published by International Monetary Fund. This book was released on 2017-01-30 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.
Book Synopsis Financial Sector Debt Bias by : Ms.Oana Luca
Download or read book Financial Sector Debt Bias written by Ms.Oana Luca and published by International Monetary Fund. This book was released on 2016-11-10 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most tax systems create a tax bias toward debt finance. Such debt bias increases leverage and may negatively affect financial stability. This paper models and estimates debt bias in the financial sector, and present novel estimates for investment banks and non-bank financial intermediaries such as finance and insurance companies. We find debt bias to be pervasive, explaining as much as 10 percent of total leverage for regular banks and 20 percent for investment banks, with the effects most pronounced before the global financial crisis. Going forward, debt bias is likely to once again gain prominence as a key driver of leverage decisions, underscoring the importance of policy reform at this juncture.
Book Synopsis Tax Policy, Leverage and Macroeconomic Stability by : International Monetary Fund. Fiscal Affairs Dept.
Download or read book Tax Policy, Leverage and Macroeconomic Stability written by International Monetary Fund. Fiscal Affairs Dept. and published by International Monetary Fund. This book was released on 2016-12-10 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.
Book Synopsis Pouring Oil on Fire: Interest Deductibility and Corporate Debt by : Pietro Dallari
Download or read book Pouring Oil on Fire: Interest Deductibility and Corporate Debt written by Pietro Dallari and published by International Monetary Fund. This book was released on 2018-12-07 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage. The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.
Book Synopsis Taxation and Leverage in International Banking by : Ms.Grace Weishi Gu
Download or read book Taxation and Leverage in International Banking written by Ms.Grace Weishi Gu and published by International Monetary Fund. This book was released on 2012-11-30 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores how corporate taxes affect the financial structure of multinational banks. Guided by a simple theory of optimal capital structure it tests (i) whether corporate taxes induce subsidiary banks to raise their debt-asset ratio in light of the traditional debt bias; and (ii) whether international corporate tax differentials vis-a-vis foreign subsidiary banks affect the intra-bank capital structure through international debt shifting. Using a novel subsidiary-level dataset for 558 commercial bank subsidiaries of the 86 largest multinational banks in the world, we find that taxes matter significantly, through both the traditional debt bias channel and the international debt shifting that is due to the international tax differentials. The latter channel is more robust and tends to be quantitatively more important. Our results imply that taxation causes significant international debt spillovers through multinational banks, which has potentially important implications for tax policy.
Book Synopsis Corporate Capital Structures in the United States by : Benjamin M. Friedman
Download or read book Corporate Capital Structures in the United States written by Benjamin M. Friedman and published by University of Chicago Press. This book was released on 2009-05-15 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.
Book Synopsis A Review of Taxes and Corporate Finance by : John R. Graham
Download or read book A Review of Taxes and Corporate Finance written by John R. Graham and published by Now Publishers Inc. This book was released on 2006 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: A Review of Taxes and Corporate Finance investigates the consequences of taxation on corporate finance focusing on how taxes affect corporate policies and firm value. A common theme is that tax rules affect corporate incentives and decisions. A second emphasis is on research that describes how taxes affect costs and benefits. A Review of Taxes and Corporate Finance explores the multiple avenues for taxes to affect corporate decisions including capital structure decisions, organizational form and restructurings, payout policy, compensation policy, risk management, and the use of tax shelters. The author provides a theoretical framework, empirical predictions, and empirical evidence for each of these areas. Each section concludes with a discussion of unanswered questions and possible avenues for future research. A Review of Taxes and Corporate Finance is valuable reading for researchers and professionals in corporate finance, corporate governance, public finance and tax policy.
Book Synopsis The Tax Elasticity of Corporate Debt by : Ruud A. de Mooij
Download or read book The Tax Elasticity of Corporate Debt written by Ruud A. de Mooij and published by International Monetary Fund. This book was released on 2011-04-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Tax Biases to Debt Finance by : Ruud A. de Mooij
Download or read book Tax Biases to Debt Finance written by Ruud A. de Mooij and published by International Monetary Fund. This book was released on 2011-05-03 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff and are published to elicit comment and to further debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only series replaced Staff Position Notes in January 2011.
Author :Comisión Europea. Dirección General de Asuntos Económicos y Financieros Publisher : ISBN 13 :9789279254192 Total Pages :21 pages Book Rating :4.2/5 (541 download)
Book Synopsis The Debt-equity Tax Bias by : Comisión Europea. Dirección General de Asuntos Económicos y Financieros
Download or read book The Debt-equity Tax Bias written by Comisión Europea. Dirección General de Asuntos Económicos y Financieros and published by . This book was released on 2012 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: The tax deductibility of interest payments in most corporate income tax systems coupled with no such measure for equity financing creates economic distortions and exacerbates leverage. This paper discusses the consequences of this debt bias and the possible remedies.
Book Synopsis Empirical Capital Structure by : Christopher Parsons
Download or read book Empirical Capital Structure written by Christopher Parsons and published by Now Publishers Inc. This book was released on 2009 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.
Book Synopsis OECD Tax Policy Studies Taxation of Capital Gains of Individuals Policy Considerations and Approaches by : OECD
Download or read book OECD Tax Policy Studies Taxation of Capital Gains of Individuals Policy Considerations and Approaches written by OECD and published by OECD Publishing. This book was released on 2006-11-24 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report investigates policy considerations in the taxation of capital gains of individuals and design features of capital gains tax systems.
Book Synopsis A Firm Lower Bound: Characteristics and Impact of Corporate Minimum Taxation by : Aqib Aslam
Download or read book A Firm Lower Bound: Characteristics and Impact of Corporate Minimum Taxation written by Aqib Aslam and published by International Monetary Fund. This book was released on 2021-06-08 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the role of minimum taxes and attempts to quantify their impact on economic activity. Minimum taxes can be effective at shoring up the corporate tax base and enhancing the perceived equity of the tax system, potentially motivating broader taxpayer compliance. Where political and administrative constraints prevent reforms to the standard corporate income tax, a minimum tax can help mitigate base erosion from excessive tax incentives and avoidance. Using a new panel dataset that catalogues changes in minimum tax regimes over time around the world, firm-level analysis suggests that the introduction or reform of a minimum tax is associated with an increase in the average effective tax rate of just over 1.5 percentage points with respect to turnover and of around 10 percent with respect to operating income. Minimum taxes based on modified corporate income lead to the largest increases in effective tax rates, followed by those based on assets and turnover.
Book Synopsis The Labyrinth of Capital Gains Tax Policy by : Leonard Burman
Download or read book The Labyrinth of Capital Gains Tax Policy written by Leonard Burman and published by . This book was released on 1999 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: " Few issues in tax policy are as divisive as the capital gains tax. Should capital gains--the increase in value of assets such as stocks or businesses--be taxed at all? If so, when should they be taxed--when they are earned, or when they are realized? Should taxes be adjusted for inflation? And should gains be taxed at both the individual and corporate levels? In this book, Leonard Burman cuts through the political rhetoric to present the facts about capital gains. He begins by explaining the complex rules that govern the taxation of capital gains, examines the kinds of assets that produce them, and the factors that can lead to gains or losses. He then reviews the effects of capital gains taxation on saving and investment and considers the arguments for and against indexing capital gains taxes for inflation, as well as other options for altering the current system. "
Book Synopsis Capital Structure and International Debt Shifting by : Mr. Luc Laeven
Download or read book Capital Structure and International Debt Shifting written by Mr. Luc Laeven and published by International Monetary Fund. This book was released on 2007-02-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a model of a multinational firm''s optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm''s indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context.
Download or read book Corporate Tax Law written by Peter Harris and published by Cambridge University Press. This book was released on 2013-03-07 with total page 651 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive and comparative analysis of corporate tax systems, focusing on structural defects and how they are addressed in practice.
