Differential taxation and firms’ financial leverage - Evidence from the introduction of a flat tax on interest income
Fossen, Frank ;  Simmler, Martin ;  ;  Universität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft

Main titleDifferential taxation and firms’ financial leverage -
Evidence from the introduction of a flat tax on interest income
AuthorFossen, Frank
AuthorSimmler, Martin
EditorUniversität <Berlin, Freie Universität> / Fachbereich Wirtschaftswissenschaft
No. of Pages45 S.
Series ; 2012,4 : Economics
KeywordsIncome taxation, capital taxation, financial structure, leverage, matching
Classification (DDC)336 Public finance
AbstractTax competition for the mobile factor capital has led to a trend in many countries to levy lower taxes on interest income, often introducing differential taxation between interest and business income. In this study, we analyze the effect of such differential taxation on the debt ratio of firms. We exploit a 2009 tax reform in Germany as a quasi-experiment, which introduced a flat final withholding tax and opened a gap of 18 percentage points between the tax rate on income from unincorporated businesses and the new lower tax rate on interest income. We apply a regression adjusted semi-parametric difference-in-difference matching strategy based on firm level panel data. In addition, we implement a more structural approach with a tax rate differential, taking into account its endogeneity by using instrumental variables. The results indicate that firms increase their leverage when the tax rate on interest income decreases, albeit to a small degree.
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FU DepartmentDepartment Business and Economics
Other affiliation(s)Volkswirtschaftslehre Schwerpunkt Finanzwissenschaft
Year of publication2012
Type of documentBook
Terms of use/Rights Nutzungsbedingungen
Created at2012-03-06 : 11:48:04
Last changed2016-01-05 : 02:38:26
Static URLhttp://edocs.fu-berlin.de/docs/receive/FUDOCS_document_000000013054