Debt and the Marginal Tax Rate
Do taxes affect corporate debt policy? This paper answers this question by testing whether the incremental use of debt is positively related to firm-specific, tax-code-consistent marginal tax rates. Using annual data for almost 10,000 firms for the years 1980-1992, evidence is provided which indicates that high-tax-rate firms issue more debt than their low-tax-rate counterparts. The estimated marginal tax rates exhibit substantial cross-sectional and time-series variation.