Abstract
This paper examines the asymmetric taxation of debt and equity and its consequences on the capital structure of companies and the economy as a whole. Policy options, the main ones of which include the restriction or elimination of interest deductibility and the allowance for corporate equity, are proposed as solutions to the corporate debt bias. Country-specific examples of the implementation of policy options to eliminate the tax bias on debt financing are presented. Moreover, information on the availability of tax incentives for the encouragement of equity financing in Turkey is given.
This is a preview of subscription content, log in via an institution to check access.
Notes
- 1.
Retrieved from http://people.stern.nyu.edu/adamodar/pdfiles/acf3E/book/ch7.pdf.
- 2.
When the shareholders sell their stocks, gain is reported as capital gain instead of ordinary income.
References
Block, C. D. (2004). Corporate taxation: Examples and explanations (4th ed.). New York: Aspen Publishers.
Buettner, T., Overesch, M., Schreiber, U., & Wamser, G. (2006). The impact of thin capitalization rules of multinationals’ financing and investment decisions, CESifo Working Paper 1817, University of Munich.
De Mooij, R. A., & Devereux, M. P. (2010). An applied analysis of ACE and CBIT reforms in the EU. International Tax and Public Finance, 18(1), 93–120.
Devereux, M.P., Maffini, G., & Xing, J. 2015. Corporate tax incentives and capital structure: Empirical Evidence efrom UK Tax Returns, Working Paper, No. 15–07.
Fatica, S., Hemmelgarn, T., & Nicodème, G.. (2012). The debt-equity tax bias: Consequences and solutions, Working Paper, No. 33.
Köprü, M. H., (2016, April). Vergide Gündem. Ekonomist, 32, 56.
International Monetary Fund (2009). Debt bias and other distortions: Crisis-related issues in tax policy, The Fiscal Affairs Department.
KPMG (2010). Discussion paper on the taxation of debt v equity.
MacKie-Mason, J. K. (1990). Do taxes affect corporate financing decisions? Journal of Finance, 45(5), 1471–1493.
Miller, E. (1977). Risk, uncertainty, and divergence of opinion. Journal of Finance, 32, 1151–1168.
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–297.
Modigliani, F., & Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53(3), 433–443.
Mooij, R.A. (2011). Tax biases to debt finance: Assessing the problem, Finding Solutions, IMF Working Paper, No. 11–11.
Overesch D., & Voeller M. (2008). The impact of personal and corporate taxation on capital structure choices, Discussion Paper, No. 08–020.
Potal, M.T., & L. Laureano. (2015). Rebound effect of allowance for corporate equity on debt bias, Working Paper, No. 15–06.
Weichenrieder, A., & Klautke, T. (2008). Taxes and the efficiency costs of capital distortions. CESifo Working Paper, No. 2431.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer International Publishing AG
About this paper
Cite this paper
Topçu, G. (2017). Corporate Debt Bias: Reasons and Possible Solutions. In: ÖZATAÇ, N., GÖKMENOGLU, K. (eds) New Challenges in Banking and Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-66872-7_1
Download citation
DOI: https://doi.org/10.1007/978-3-319-66872-7_1
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-66871-0
Online ISBN: 978-3-319-66872-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)