Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172203
Authors: 
Fischer, Marcel
Jensen, Bjarne Astrup
Year of Publication: 
2017
Series/Report no.: 
arqus Discussion Paper 219
Abstract: 
We study the implications of the corporate debt tax shield in a growth economy that taxes household income and firm profits and redistributes tax revenues in an attempt to harmonize the lifetime consumption opportunities of households that differ in their endowments. Our model predicts that the debt tax shield (1) increases the risk-free rate, (2) leads to a higher growth rate of the economy, and (3) increases the degree of disparity in households' lifetime consumption opportunities. We further show that the debt tax shield affects the tradeoff between the goals of achieving a high growth rate of the economy and a low degree of inequality and quantify this tradeoff.
Subjects: 
debt tax shield
macroeconomic growth
redistributive tax system
JEL: 
E21
E23
G11
H23
H31
H32
Document Type: 
Working Paper
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