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- Title
Welfare effects of business taxation under default risk.
- Authors
Comincioli, Nicola; Panteghini, Paolo M.; Vergalli, Sergio
- Abstract
In this article, we use a stochastic model with a representative firm to study business tax policy under default risk. We will show that, for a given tax rate, tax revenue and welfare are crucially affected by default risk and its costs, as long as interest expenses are deductible. Thus, an evaluation made without accounting for default may be dramatically biased. Moreover, we show that the "debt bias" due to the tax treatment of debt finance causes a quite relevant deadweight loss.
- Subjects
BUSINESS tax; DEFAULT (Finance); COUNTERPARTY risk; FISCAL policy; INTERNAL revenue; TAX rates
- Publication
International Tax & Public Finance, 2021, Vol 28, Issue 6, p1412
- ISSN
0927-5940
- Publication type
Article
- DOI
10.1007/s10797-020-09650-1