https://macropaperwarehouse.com/authors/toni-m-whited/Toni M WhitedHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/taxes-depress-corporate-borrowing-evidence-from-private-firms/https://macropaperwarehouse.com/papers/taxes-depress-corporate-borrowing-evidence-from-private-firms/<p><strong>Research Question</strong></p> <p>Does corporate income taxation raise or lower corporate leverage? The canonical Modigliani-Miller (1963) view holds that the interest tax deduction makes debt more attractive, predicting a positive taxes-to-leverage relationship. Most prior empirical work using large public firms confirms this prediction. This paper re-examines the question using data on small private U.S. firms and finds the opposite: higher corporate taxes <em>depress</em> leverage, at least for small, financially constrained private firms.</p>