Personal taxation of capital income and the financial leverage of firms

Simmler, Martin and Fossen, Frank M (2016) Personal taxation of capital income and the financial leverage of firms. International Tax and Public Finance, 23 (1). pp. 48-81.

Abstract

Tax competition for capital has led to a trend where many countries levy lower taxes on interest income, often introducing differential taxation between interest and business income. This study analyzes the effect on firm debt usage. We exploit Germany’s 2009 tax reform, which introduced a final withholding tax on interest income with a flat rate 18 percentage points below the unchanged tax rate on income from unincorporated businesses, as a quasi-experiment. The results, based on firm-level panel data, indicate that firms increase their leverage when the tax rate on interest income decreases, albeit to a small degree.

Item Type: Article
Subject(s): Taxation
Date Deposited: 18 Sep 2018 14:43
Last Modified: 18 Sep 2018 14:43
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6915

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