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Taxes Depress Corporate Borrowing: Evidence from Private Firms.

We use variation in state corporate income tax rates to re-examine the relation between taxes and corporate leverage. Contrary to prior research, corporate leverage rises after tax cuts for small private firms. An estimated dynamic equilibrium model shows that tax cuts make capital more productive a...

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Publicado en:Review of Economic Studies Vol. 93; no. 4; pp. 2715 - 2750
Autores principales: Ivanov, Ivan T, Pettit, Luke, Whited, Toni M
Formato: Artículo
Publicado: Oxford University Press / USA Jul2026
Materias:
Tax cuts
Financial leverage
Private companies
Corporate taxes
Corporate debt financing
Capital productivity
Credit spread
Tax deductions
Acceso en línea:Ver este registro en EBSCOhost
Sumario:We use variation in state corporate income tax rates to re-examine the relation between taxes and corporate leverage. Contrary to prior research, corporate leverage rises after tax cuts for small private firms. An estimated dynamic equilibrium model shows that tax cuts make capital more productive and spur the use of leverage. Tax cuts also produce more distant default thresholds and lower credit spreads. These effects outweigh the lower interest tax deduction and lead to higher optimal leverage choices, especially for firms with flexible investment policies. The presence of the interest tax deduction raises consumer welfare in equilibrium.