Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions

The note will pursue one of the major themes of the Fund’s report on financial taxation to the G20 and its work on taxation and the crisis: the importance of paying more attention to the tax biases favoring the use of debt rather than equity finance, notably through the deductibility against corporation income tax of interest payments but not the return to equity. It will assess evidence on the size, nature and welfare implications of the consequent distortions, and develop practical for addressing it.