Estimating the Tax Advantage of Corporate Debt

Estimating the Tax Advantage of Corporate Debt ABSTRACT This paper presents estimates of the effective tax value of incremental interest deductions for corporations taking into account that they may not be able to utilize all their interest deductions fully because of either insufficient taxable income or the availability of nondebt tax shields. After describing particular features of the tax code which may drive a wedge between statutory and effective tax rates for debt finance, we present estimates using the Treasury Corporate Tax Model of effective tax rates for a variety of industry groupings. Our estimates suggest that the after‐tax cost of debt varies widely across industries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Estimating the Tax Advantage of Corporate Debt

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Publisher
Wiley
Copyright
1983 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1983.tb03628.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper presents estimates of the effective tax value of incremental interest deductions for corporations taking into account that they may not be able to utilize all their interest deductions fully because of either insufficient taxable income or the availability of nondebt tax shields. After describing particular features of the tax code which may drive a wedge between statutory and effective tax rates for debt finance, we present estimates using the Treasury Corporate Tax Model of effective tax rates for a variety of industry groupings. Our estimates suggest that the after‐tax cost of debt varies widely across industries.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1983

References

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