Do Personal Taxes Destroy Tax Shields? A Critique to Miller’s (1977) Paper
30 Pages Posted: 1 Oct 2015 Last revised: 28 Aug 2017
Date Written: August 26, 2017
La versión española de este artículo se puede encontrar en: http://ssrn.com/abstract=2685207.
We discuss the relevance of personal taxes on Tax Shields. Interest and taxes are the basis for defining an optimal capital structure. When personal taxes are greater than or equal to TS an optimal capital structure will not exist.
We suggest that the approach proposed by Miller (1977) might understate the effect of personal taxes in the net TS and/or its associated net value. We consider the irrelevance of personal taxes on interest received by debtholders on the value of TS earned by the firm on interest paid. We conclude that Miller’s approach might be wrong and has some inconsistencies.
Keywords: Debt Tax Shields, personal taxes, value of tax shields, optimal capital structure
JEL Classification: E62, G12, G32, M21
Suggested Citation: Suggested Citation