The Tax Shield Increases the Interest Rate

Marcel Fischer*, Bjarne Astrup Jensen

*Corresponding author af dette arbejde

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Abstract

We study the general equilibrium implications of the corporate tax shield in a growth economy that taxes household income and firm profits and redistributes tax revenues. Our stylized model predicts that in general equilibrium the tax shield's reduction of the corporate after-tax borrowing rate is counteracted (but not fully eliminated) by an increase in the pre-tax rate.
OriginalsprogEngelsk
Artikelnummer107096
TidsskriftJournal of Banking & Finance
Vol/bind161
Antal sider9
ISSN0378-4266
DOI
StatusUdgivet - apr. 2024

Emneord

  • Tax shield
  • Interest rate
  • General equilibrium

Citationsformater