NDLI: Financial leverage and corporate taxation: evidence from German corporate tax return data

Content Provider	Springer Nature Link
Author	Dwenger, Nadja Steiner, Viktor
Copyright Year	2012
Abstract	To estimate the impact of profit taxation on the financial leverage of corporations, this study uses a pseudopanel constructed from comprehensive corporate tax return microdata for the period 1998–2001, which saw the introduction of major corporate tax reform in Germany. Financial leverage refers to the ratio of long-term debt to total capital. The endogeneity of the firm-specific marginal after-financing corporate income tax rate is controlled for by an instrumental variable approach. The instrument for the observed marginal tax rate is the counterfactual tax rate that a corporation would have faced in a particular period had there been no endogenous change, triggered by the tax reform, of its financial leverage and tax base. This counterfactual tax rate is derived from a detailed microsimulation model of the corporate sector, based on tax return microdata. The marginal tax rate has a statistically significant and relatively large positive effect on corporate leverage; for firms reporting positive profits, an increase of the marginal tax rate of 1 % would increase the financial leverage by approximately 0.7 %, on average. The debt ratio is less responsive to tax incentives for small corporations and firms facing high economic risks.
Starting Page	1
Ending Page	28
Page Count	28
File Format	PDF
ISSN	09275940
Journal	International Tax and Public Finance
Volume Number	21
Issue Number	1
e-ISSN	15736970
Language	English
Publisher	Springer US
Publisher Date	2012-12-14
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Financial structure Debt ratio Corporate income taxation Corporate tax return data Microsimulation Public Finance & Economics Business Taxation/Tax Law Finance/Investment/Banking
Content Type	Text
Resource Type	Article
Subject	Finance Accounting Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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