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Title:Tax incentives and capital structure choice: Evidence from Germany PDF Logo
Authors:Hartmann-Wendels, Thomas
Stein, Ingrid
Stöter, Alwin
Issue Date:2012
Series/Report no.:Discussion Paper, Deutsche Bundesbank 18/2012
Abstract:This paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model.
Subjects:debt
capital structure
marginal tax rate
corporate taxes
personal taxes
JEL:G32
H20
ISBN:978-3-86558-830-2
Document Type:Working Paper
Appears in Collections:Discussion Papers, Deutsche Bundesbank

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