Debt and Corporate Tax Evasion

20 Pages Posted: 14 Feb 2009 Last revised: 7 Feb 2012

See all articles by David Joulfaian

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Date Written: January 30, 2012

Abstract

Shareholder wealth may be maximized by borrowing, as it is tax preferred, or by under reporting firm profits; both shield income from taxation, legally in the case of the former. But does the utilization of one shield crowd out the use of the other? More specifically, does tax evasion lead to lower leverage, as the empirical literature suggests, or is it the other way around with highly leveraged firms cheating less? Using a unique random sample of small corporations thoroughly audited, the empirical results show that tax evasion declines with firm leverage; there is little support for the findings in the literature.

Keywords: Taxes, Corporate Tax Evasion, Debt

JEL Classification: H25, H26, G32

Suggested Citation

Joulfaian, David, Debt and Corporate Tax Evasion (January 30, 2012). Available at SSRN: https://ssrn.com/abstract=1342712 or http://dx.doi.org/10.2139/ssrn.1342712

David Joulfaian (Contact Author)

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

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