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Estimating the Tax Advantage of Corporate Debt
Author(s) -
CORDES JOSEPH J.,
SHEFFRIN STEVEN M.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03628.x
Subject(s) - taxable income , corporate tax , tax shield , economics , monetary economics , value added tax , tax deduction , indirect tax , ad valorem tax , state income tax , tax credit , tax reform , business , public economics , tax avoidance , accounting , gross income
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.