Corporate income taxes, corporate debt, and household debt
We find that corporate income tax (CIT) rates are significantly positively associated with corporate debt and negatively associated with household debt, using panel data of 28 OECD countries between 1995 and 2015. The found association between CIT and debt comes from small countries where CIT is mor...
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| Veröffentlicht in: | International tax and public finance 2019-06, Vol.26 (3), p.506-535 |
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| container_title | International tax and public finance |
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| creator | Park, Jinbaek Lee, Young |
| description | We find that corporate income tax (CIT) rates are significantly positively associated with corporate debt and negatively associated with household debt, using panel data of 28 OECD countries between 1995 and 2015. The found association between CIT and debt comes from small countries where CIT is more exogenous due to tax competition. The tax deductibility of interest payments encourages firms to use more debt when CIT is high. If the total supply of loanable funds is not affected by a lower CIT, a lower CIT leads to a larger fraction of the total private debt incurred by the household sector. The estimated association becomes stronger in regressions with difference-stationary variables. A decrease in the CIT rate can explain around one-fourth of the increase in the average household debt incurred during the last two decades. The paper is the first study to investigate and yield supportive, though weak, evidence of distortion in household indebtedness caused by a CIT cut. |
| doi_str_mv | 10.1007/s10797-018-9513-4 |
| format | Article |
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| subjects | Business Taxation/Tax Law Consumer credit Corporate debt Corporate income tax Corporate taxes Debt Distortion Economic models Economics Economics and Finance Households Income taxes Panel data Payments Public Finance Taxation |
| title | Corporate income taxes, corporate debt, and household debt |
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