Ruhr Economic Papers

Ruhr Economic Papers #533

Taxes and Corporate Financing Decisions: Evidence from the Belgian ACE Reform

by Nils aus dem Moore

RWI, 12/2014, 71 S./p., 10 Euro, ISBN 978-3-86788-610-9 DOI: 10.4419/86788610



We contribute to the empirical literature on the debt bias of corporate income taxation through a micro-econometric evaluation of the so-called ACE corporate tax reform in Belgium based on firm-level accounting data. We interpret the tax reform that came into effect in January 2006 as an economic quasi experiment. We identify its causal impact on the leverage ratio of Belgian corporations by means of a difference-in-differences (DiD) approach, using corporations from the UK as comparison group. Our results document that the ACE reform led to a systematic pattern of heterogeneous effects on the capital structure of Belgian corporations, as the estimated reduction of the leverage ratio is most pronounced for big firms. Estimation of quantile treatment effects further reveals that reform effects get monotonically larger across the distribution of firm leverage. Finally, we provide evidence of sectoral heterogeneity with significant effects observed for capital-intensive, but not for labor-intensive sectors.

JEL-Classification: H25, H32, H22, G32

Keywords: Corporate income taxation; financial structure; debt bias; allowance for corporate equity; difference-in-differences