TAX RATE AND NON-DEBT TAX SHIELD

Valuing the Debt Tax Shield

A Simple Accounting-based Valuation Model for the Debt Tax Shield

This paper describes a simple way to integrate the debt tax shield into an accounting-based valuation model. The market value of equity is determined by forecasting residual operating income, which is calculated by charging operating income for the operating assets at a required return that accounts for the tax benefit that comes from borrowing to raise cash for the operations. The model assume...

Estimating the Tax Benefits of Debt

n 1958, Nobel Laureates Franco Modigliani and Merton Miller published their famous irrelevance theorems.1 One implication from these theorems is that ers and the U.S. government. Panel A of Figure 1 shows that if the corporate tax rate is 33.3%, the government gets one-third of the pie for an all-equity firm, and stockholders get the remaining two-thirds. But if the firm chooses to finance with...

Tax Rate and Tax Base Competition for Foreign Direct Investment

This paper argues that the large reduction in corporate tax rates and only gradual widening of tax bases in many countries over the last decades are consistent with tougher international competition for foreign direct investment (FDI). To make this point we develop a model in which governments compete for FDI using corporate tax rates and tax bases. The model’s predictions regarding the slope o...

value added tax and tax evasion

The phenomenon of tax evasion has been always one of the most major issues among economists due to it's devastating effects on the economy and the process of economic development. Many scholars have always sought to provide solutions to reduce and limit tax evasion. The introduction of the VAT system can be seen as a milestone in the area of economic transparency and tax evasion, which refers t...