The Debt Tax Shield, Economic Growth and Inequality

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We study the general-equilibrium implications of the corporate debt tax shield in a growth economy that taxes household income and firm profits and redistributes tax revenues in anattempt to harmonize the lifetime consumption opportunities among households that differ in their endowments. Our model shows that in general equilibrium the tax shield’s reduction in the corporate after-tax borrowing rate is counteracted by an increase in the pre-tax rate. Our model further predicts the debt tax shield to lead to a higher growth rate of the economy and an increase in the degree of disparity in households’ lifetime consumption opportunities.
Original languageEnglish
Publication date2019
Number of pages48
Publication statusPublished - 2019
EventEuropean Financial Management Association 2019 Annual Meetings - University of Azores, Ponta Delgada, Island of S. Miguel, Portugal
Duration: 26 Jun 201929 Jun 2019
Conference number: 28


ConferenceEuropean Financial Management Association 2019 Annual Meetings
LocationUniversity of Azores
CityPonta Delgada, Island of S. Miguel
Internet address


  • Debt tax shield
  • Macroeconomic growth
  • Redistributive tax system

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