Corporate tax plan may not have intended effect

  • April 6, 2017
  • By WashU Olin Business School
  • 1 minute read

An analysis of the Republican tax plan in the House of Representatives in The New York Times’ Dealbook column cites research by Olin associate professor of finance Mark Leary. Leary and his co-authors studied corporate debt levels throughout the 20th century and the relationship to corporate tax rates.

“In a 2014 paper that studied a century of borrowing at American corporations, John R. Graham of Duke University, Mark T. Leary at Washington University in St. Louis and Michael R. Roberts at the University of Pennsylvania did not find strong evidence that corporate tax rates (and thus the deductibility of interest) had a clear influence on companies’ borrowing levels. “On aggregate, the effects were much more muted than what you’d expect,” said Mr. Leary, an associate professor.

“Conversely, of course, that means that removing the deductibility of interest may have less of an impact on how companies finance themselves than many people expect. “It could be muted in the other direction,” Mr. Leary added.”

Link to New York Times article.

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