Debt Bias in Corporate Income Taxation and the Costs of Banking Crises
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Author | : Sven Langedijk |
Publisher | : |
Total Pages | : 0 |
Release | : 2015 |
ISBN-10 | : OCLC:913794090 |
ISBN-13 | : |
Rating | : 4/5 (90 Downloads) |
Book Synopsis Debt Bias in Corporate Income Taxation and the Costs of Banking Crises by : Sven Langedijk
Book excerpt: Corporate income taxation (CIT) in most countries favors debt over equity financing, leading to over-indebtedness. This problem is particularly acute for the financial sector. We estimate financial-stability benefits of eliminating this debt bias. We estimate the long-run effects of CIT on bank leverage and, using a Vasicek-based model of banking crisis losses, we find that eliminating this debt bias could reduce public finance losses in the range of 30 to 70%. These results hold even for conservative estimates of bank-leverage and portfolio-risk effects of CIT changes.