The Effect of Taxation on Corporate Financing and Investment

Hong Chen, Murray Z. Frank

Research output: Contribution to journalArticlepeer-review

Abstract

Extensive empirical research concerning the impact of taxes on corporate decisions has had trouble identifying seemingly obvious effects. Perhaps the problem is that the seemingly obvious tax predictions are not quite right. We provide an equilibrium model with both corporate and personal taxes. In the steady-state equilibrium, the corporate tax rate affects the level of production despite interest deductibility at the firm level, but not household-level taxes on interest earnings or dividends. We prove several other tax irrelevance results and document a Laffer curve in the corporate tax rate. (JEL G31, G32, G35)

Original languageEnglish (US)
Pages (from-to)47-87
Number of pages41
JournalReview of Corporate Finance Studies
Volume11
Issue number1
DOIs
StatePublished - Feb 1 2022

Bibliographical note

Publisher Copyright:
© 2021 The Author(s). Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

Fingerprint

Dive into the research topics of 'The Effect of Taxation on Corporate Financing and Investment'. Together they form a unique fingerprint.

Cite this