Title Page
IMF Working Paper
Pouring Oil on Fire: Interest Deductibility and Corporate Debt
by Pietro Dallari, Nicolas End, Fedor Miryugin, Alexander F. Tieman and Seyed Reza Yousefi
Copyright Page
© 2018 International Monetary Fund
WP/18/257
IMF Working Paper
Fiscal Affairs Department
Pouring Oil on Fire: Interest Deductibility and Corporate Debt
Prepared by Pietro Dallari, Nicolas End, Fedor Miryugin, Alexander F. Tieman and Seyed Reza Yousefi1
Authorized for distribution by Era Dabla-Norris
December 2018
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Author’s E-Mail Addresses: PDallari@imf.org, NEnd@imf.org, fedor.miryugin@investmentdataservices.com, ATieman@imf.org, and SYousefi@imf.org
Table of Contents
I. INTRODUCTION
II. HYPOTHESES DEVELOPMENT
III. CORPORATE MICRO DATA: DESCRIPTION OF THE DATA AND STYLIZED FACTS
A. Data
B. Stylized Facts
IV. AN EMPIRICAL ANALYSIS OF THE CORPORATE DEBT BIAS
A. Empirical Strategy
B. Evidence of Debt Bias
C. Robustness Checks
V. POLICY IMPLICATIONS
REFERENCES
APPENDIX. A MODEL OF TAXATION AND CORPORATE LEVERAGE
FIGURES
1. Evolution of Nonfinancial Corporate Debt in Selected Countries
2. Leverage and Size
3. Leverage and Tangibility
4. Revenue, Capital Intensity, Cash Flow, and Leverage
5. Leverage by Economic Sector
6. Leverage and CIT
7. Contribution to Leverage of the Firm Size Component
8. Leverage due to Debt Bias
9. Evolution of Interaction Coefficients in Quantile Regressions
TABLES
1. Variable Definitions
2. Summary Statistics (Micro Level)
3. Main Results
4. Quantile Regressions
5. Long-Term Debt Instead of Total Liabilities
6. Total Liabilities-to-Equity Instead of Total Liabilities-to-Assets
7. European Countries
8. Trimming Top Two Percent Instead of Top One Percent
9. A Two-Employee Threshold Instead of a Ten-Employee Threshold
10. More Recent Orbis Vintage (2005–2015)
11. Large Firms Only
12. Balanced Sample
13. Binary Variable Instead of Continuous Micro Variable
14. Coverage by Country and Sector