Estimating the Tax Advantage of Corporate Debt

Joseph J. Cordes · Steven M. Sheffrin

90 citations0/0 files storedThe Journal of Finance

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Corporate Taxation and Avoidance Corporate Finance and Governance Financial Reporting and Valuation Research

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.

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1980Optimal capital structure under corporate and personal taxation 1984Capital Structure Puzzle 1980Inflation-Proof Depreciation of Assets

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1990Tax-Adjusted Discount Rates 1986Corporate Finance and Taxes: A Review 1999An Evaluation of Alternative Measures of Corporate Tax Rates 1986Corporation Tax, Finance and the Cost of Capital 1985The Structure and Incentive Effects of Corporate Tax Liabilities 2010THE IMPLICATIONS OF TAX ASYMMETRY FOR U.S. CORPORATIONS 1985The Value of the Tax Subsidy on Risky Debt 1986BUSINESS INVESTMENT AND TAX POLICY: A PERSPECTIVE ON EXISTING MODELS AND EMPIRICAL RESULTS

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