Table 1a. Summary Statistics
Variable
Notation Sources
Obs
Mean st. dev. Min
Max
Corporate debt-asset ratio
Total debt / assets
Dst / Ast SOI: Corporate Returns
434
25.18
8.05
9.86
43.13
SOI: Corporate Returns
SOI: Corporate Returns
434
434
15.73
9.45
4.36
4.07
7.30
0.79
26.82
17.34
434
13.04 12.72 -12.41 28.49
434
37.57 13.15
15
52
434
37.97 12.81
15
52
SOI: Corporate Returns
434
386.7 1064
0.03
4803
SOI: Corporate Returns
SOI: Corporate Returns
SOI: Corporate Returns
SOI: Corporate Returns
SOI: Corporate Returns
434
434
434
434
434
20.79
3.66
9.50
22.83
1.12
6.32
2.46
4.00
4.53
1.08
5.82
0.11
2.80
9.58
0.08
35.66
8.31
25.25
34.39
5.40
37
12.64
5.49
5.20
22.90
37
24.49
2.36
20.25 29.41
37
6.76
3.02
1.63
14.44
37
0.67
0.34
0.27
1.27
Long-term debt / assets
Short-term debt / assets
Tax rates
Corporate income tax rate –
personal tax rate * the
fraction of household assets
outside of pensions and life
insurance
 st  mt Authors’ calculation using
Corporate income tax rate
 st
Corporate income tax rate
based on the average profits
before interest deductions
ˆ st
Corporate assets
Real assets per return
Astr
Net depreciable assets / assets
Land / assets
Cash / assets
Account receivable / assets
Intangible assets / assets
SOI: Corporate Returns,
SOI: Individual Returns,
Flow of Funds Accounts in
the United States
Authors’ calculation using
SOI: Corporate Returns
Authors’ calculation using
SOI: Corporate Returns
Yearly variables
Yearly average of  st  mt
Personal tax rate * the fraction
of household assets outside of
pensions and life insurance
Three-year Treasury Bill rate
Average Dow Jones index /
GDP
Note:
 t  mt Authors’ calculation using
mt
SOI: Corporate Returns,
SOI: Individual Returns
Authors’ calculation using
SOI: Individual Returns,
Flow of Funds Accounts in
the United States
Economic Report of the
President
GDP from Economic
Report of the President
1. Units of the variables are percents except for real assets per return and average Dow Jones index / GDP,
for which units are million US $ and a fraction, respectively.
2. Dow Jones indices are downloaded from www.forecasts.org and The Flow of Funds Accounts in the
United States are download from the Federal Reserve Board’s wet site (www.bog.frb.fed.us).
3. A small discrepancy between the means of
 st  mt and of  t  mt occurs because the number of asset
groups varies by year.
21
Table 1b. Summary Statistics by Size of Firm
Large firms
with real
assets larger
than $25m
(n=182)
Medium firms
Small firms
with real
with real
assets
assets smaller
between $5m
than $5m
and $25m
(n=186)
(n=66)
Variable
Mean st. dev.
Mean st. dev.
Mean st. dev.
Corporate debt-asset ratio
Total debt / assets
16.93
3.48
28.79
6.13
31.98
2.93
Long-term debt / assets
11.46
2.02
16.81
2.92
19.54
2.11
Short-term debt / assets
5.47
2.09
11.98
3.32
12.44
1.92
5.13
21.52
4.50
1.49
10.55
6.19
45.85
5.73
26.01
11.00
6.18
45.28
6.74
27.21
11.26
Tax rates
Corporate income tax rate – personal tax rate *
the fraction of household assets outside of
21.76
pensions and life insurance
Corporate income tax rate
46.37
Corporate income tax rate based on the average
46.31
profits before interest deductions
Corporate assets
Real assets per return
916.4 1491.4
13.11
5.72
1.00
1.11
Net depreciable assets / assets
14.86
3.93
20.34
2.63
26.75
2.32
Land / assets
1.22
0.60
3.67
0.96
6.04
1.36
Cash / assets
6.78
1.97
8.29
1.48
12.60
3.92
Account receivable / assets
24.56
4.13
25.44
2.04
20.21
4.20
Intangible assets / assets
0.88
1.06
1.11
0.93
1.37
1.10
22
Table 2a. D/A Ratio on Corporate Marginal Tax Rate, OLS
Dependent variables are the ratio of total debt to total assets in percent.
Estimation method
 st  mt
(1)
(2)
(3)
(4)
(5)
OLS
OLS
OLS
OLS
OLS
-0.419**
-0.393**
0.110**
0.302**
0.067**
(0.018)
(0.020)
(0.033)
(0.025)
(0.019)
-2.243**
-0.773**
2.227**
(0.120)
(0.192)
(0.351)
log( Astr )
r
st
2
r
st
3
(log( A ))
-0.712**
(0.146)
(log( A ))
-0.572**
(0.068)
(log( Astr )) 4
0.088**
(0.009)
(log( Astr )) 5
0.019**
(0.004)
r
st
6
r
st
7
(log( A ))
-0.004**
(0.001)
(log( A ))
0.00021**
(0.000038)
Net dep. assets / total assets
Land / total assets
Accounts receivable / total assets
Intangible assets / total assets
r
st
(Dow Jones index / GDP)* log( A )
Year dummies included?
No. of observations
R2
0.347**
(0.069)
(0.066)
1.463
Cash / total assets
Constant
0.639**
**
0.156
(0.289)
(0.295)
-0.156
-0.414**
(0.113)
(0.086)
-0.036
-0.072
(0.046)
(0.044)
1.237
1.406**
*
(0.581)
(0.354)
-0.224
-0.245
(0.132)
(0.125)
30.646**
25.572**
23.143**
-0.349
22.049**
(0.243)
(1.289)
(1.013)
(2.308)
(2.379)
No
434
0.437
Yes
434
0.433
Yes
434
0.726
Yes
434
0.932
Yes
434
0.972
White-corrected standard errors in parentheses. * significant at 5% level; ** significant at 1% level.
Data come from the U.S. Statistics of Income: Corporate Tax Returns, for 1954 – 1995 except for 1962 and
1966-9, reported separately each year for around 14 different size categories of firms, based on assets.
23
Table 2b. D/A Ratio on Corporate Marginal Tax Rate, IV
Dependent variables are the ratio of debt to total assets in percent..
(1)
(2)
(3)
(4)a
Dependent variable
Total
Dst / Ast
short-term
Dst / Ast
long-term
Dst / Ast
Total
Dst / Ast
 st  mt
0.047*
0.029
0.019
0.057*
(0.023)
(0.019)
(0.015)
(0.027)
2.406**
0.921**
1.486**
2.415**
(0.379)
(0.319)
(0.246)
(0.376)
-0.724**
-0.097
-0.627**
-0.724**
(0.147)
(0.100)
(0.092)
(0.147)
-0.590**
-0.390**
-0.200**
-0.590**
(0.071)
(0.055)
(0.045)
(0.071)
0.090**
0.037**
0.052**
0.090**
(0.009)
(0.007)
(0.005)
(0.009)
0.020**
0.014**
0.006**
0.020**
(0.004)
(0.003)
(0.002)
(0.004)
-0.004**
-0.002**
-0.002**
-0.004**
(0.001)
(0.001)
(0.000)
(0.001)
0.00022**
0.00011**
0.00011**
0.00022**
(0.00004 )
(0.00003)
(0.00002)
(0.00004)
0.356
0.029
0.327
0.357**
(0.067)
(0.035)
(0.059)
r
st
log( A )
(log( Astr )) 2
(log( Astr )) 3
r
st
(log( A ))
4
(log( Astr )) 5
(log( Astr )) 6
r
st
(log( A ))
7
Net depreciable assets / total assets
Land / total assets
Cash / total assets
Accounts receivable / total assets
Intangible assets / total assets
r
st
(Dow Jones index / GDP)* log( A )
Constant
Year dummies included?
No. of observations
R2
**
**
(0.067)
0.077
-0.117
0.194
0.085
(0.303)
(0.212)
(0.236)
(0.304)
-0.423**
-0.616**
0.193**
-0.415**
(0.087)
(0.063)
(0.066)
(0.088)
-0.073
-0.108
0.035
-0.073
(0.044)
(0.035)
(0.023)
(0.044)
1.381
-0.085
1.465
1.380**
(0.360)
(0.284)
(0.214)
(0.360)
-0.275*
-0.228*
-0.047
-0.276*
(0.128)
(0.092)
(0.074)
(0.127)
22.56**
19.81**
2.75
21.70**
(2.435)
(1.931)
(1.565)
(2.583)
Yes
434
0.972
Yes
434
0.931
Yes
434
0.967
Yes
434
0.972
**
**
**
Data come from the U.S. Statistics of Income: Corporate Tax Returns, for 1954 – 1995 except for 1962
and 1966-9, reported separately each year for around 14 different size categories of firms, based on
assets.
24
All regressions use IV, to correct for possible endogeneity in  st . White-corrected standard errors in
parentheses. * significant at 5% level; ** significant at 1% level.
Note: a tax variable in column (4) is  st  mt  (1   st ) * z st instead of  st  mt .
25
Table 3. Yearly Variation Unexplained by Non-tax Factors, OLS and IV.
Sample years are from 1954 to 1995 except 1962 and 1966-69.
Dependent variables are the average value of Dst / Ast each year, corrected for the effects of the nontax
variables using coefficients from column (1) of Table 2b.
Estimation method
 t  mt
(1)
(2)
(3)
(4)
(5)a
(6)a
OLS
OLS
IV
IV
IV
IV
-0.241**
0.330*
0.362*
(0.045)
(0.100)
(0.103)
0.305**
0.257*
0.249*
(0.104)
(0.100)
(0.092)
-0.603**
-0.395**
-0.210**
(0.133)
(0.128)
(0.070)
t
mt
Three year Treasury Bill rate
0.523
Dow Jones index / GDP
Dummy for post 1986
Constant
No. of observations
R2
0.253
0.245
(0.161)
0.540
(0.159)
(0.130)
(0.158)
(0.164)
-3.840*
-4.060*
-4.724**
-3.289**
-1.384
(1.586)
(1.613)
(1.251)
(0.952)
(0.909)
3.369
3.583
**
**
0.483
**
1.845
1.955
1.591*
(0.750)
(0.758)
(1.004)
(0.676)
(0.706)
8.569**
-0.507
-0.933
8.390*
36.516**
-3.124
(0.641)
(2.172)
(2.157)
(3.992)
(3.925)
(4.206)
37
0.42
37
0.75
37
0.75
37
0.79
25
0.54
25
0.51
**
**
**
Data come from the U.S. Statistics of Income: Corporate Tax Returns, for 1954 – 1995 except for 1962
and 1966-9, averaged each year over 14 different size categories of firms, based on assets.
The tax incentive variable,  t  mt , and its instrument, ˆst  mt , are unweighted yearly averages.
White-corrected standard errors in parentheses.
*
significant at 5% level; ** significant at 1% level.
Note: a m t in column (5) is a weighted average, weighting by the size of taxable income. m t in column
(6) is a weighted average, weighting by the size of assets. These two columns use just the IMF data, so
include 1964 and 1970-93.
26
Table 4. Actual Yearly Variation of D/A, IV
Sample years are 37 years from 1954 to 1995 except 1962 and 1966-69.
(1)
Dependent variable
 t  mt
(2)
(3)
(4)
unweighted average of debtassets ratio,
( Dst / Ast ) / S

Asset-weighted average of debtassets ratio,
Dst / Ast


s
s
s
0.130
0.110
(0.113)
(0.136)
t
mt
0.035
0.066
(0.066)
(0.058)
-0.533**
-0.553**
(0.115)
Three year Treasury Bill rate
Dow Jones index / GDP
Dummy for post 1986
Constant
No. of observations
R2
(0.122)
0.505
0.411
(0.173)
(0.096)
(0.177)
(0.102)
-3.002
-4.109
-2.563
-4.066**
(1.529)
(1.053)
(1.462)
(0.941)
5.724
2.827
3.829
1.308*
(0.957)
(0.609)
(1.155)
(0.497)
20.84**
36.39**
15.42**
30.28**
(2.424)
(3.051)
(3.287)
(2.935)
37
0.91
37
0.95
37
0.80
37
0.88
**
**
**
**
**
0.363
*
**
0.304**
Data come from the U.S. Statistics of Income: Corporate Tax Returns, for 1954 – 1995 except for 1962
and 1966-9, reported separately for around 14 different size categories of firms, based on assets.
White-corrected standard errors in parentheses.
*
significant at 5% level; ** significant at 1% level.
Note: For columns (1) and (2), the tax incentive variable,  t  mt , and its instrument, ˆst  mt , are
unweighted yearly averages. Since in columns (3) and (4) the dependent variable is an assetweighted average of the debt-asset ratios, the tax incentive variable,  t  mt , is now a weighted
average corporate tax rate, weighting by the size of corporate assets in each category. The
instrument is also constructed as an asset-weighted average of ˆst  mt .
27
Figure 1. US Corporate Tax Rate Structure, 1954-1995
51
52
50
52.8 48
50
48
49.2
46 46 46
48
48
46
40 40 40 40
Marginal tax rate
40
38
40
42.5
39
39
35
35
34
37
34
30
30 30 30
30
34
30
27.5
20
25
22
22 22 24.2 22.5
22
19
20
18 18
16.5
16
15 15
15 15
15
&
19
54
-
50
bt
25
bt
&
50
25
Year
w
lo
be
19
63
1
19
96
65
4
19 -19
68 67
-1
96
9
19 19
7
71
0
19 -19
75 74
19 19
79 78
-1
98
1
19
82
19 198
84
3
-1
98
6
19 198
7
88
19 199
2
93
-1
99
5
0
33
,3
3
0
18 ,33 ,00
e
18
15
ov
00
ab 5 & 0 &
,0
1
0
10
,0
bt
&
05
10
4
5
1,
bt
40
&
1,
0
00
0
bt
00
1,
1,
&
5
bt
5
33
33
&
bt
0
0
10
10
bt
&
75
75
bt
17
10
25
20
Taxable income, thousand dollars
Note: Surtaxes have been imposed in a certain range of taxable income since 1984. Marginal tax rates for taxable
income more than $25,000 in years 1965-67 were 48%, and those in 1964 were 50%. All figures
represent nominal income. Inflation corrections would lead to further variation across years.
28
Figure 2. Debt-Asset Ratios on Size of Firm, 1954-1995
45
88
Debt / Assets, %
40
30
20
10
90
89
90
86
89
91
91
90
88
91 84
88
86
92
87
87
85
85
86
8985
87
78
95 84
92
73 84
79
77
82
94
93
83
92
91
7674
93
78
81
89
79
74
80
93
75
77
94
73
75
76
9572
58
95
71
59
90
82
81
90 84
83
7065
72 83
80
83
90
85
6056
94
89
928884
83 91
86
91
89
64
78
77
76
87
74
88
91
8257
59
71
75
86 8092
89
63
92
73
9590
55
85
79
71 65
60
95
72
63
94 87
82
82
94
81
84 95
81
94 87 95
94
88
93
64
92 85 79
70
70
81
80
78
93
60
87
61
54 77
86
59
73 60 61
86
7674
77
80
888280 93
59
60
59
61 93
79
78
58
83
5975 72
65
63
58
63 79
78
75
71
81
64
76
58
60
57
85
58
74
57
73
63
71 57
61
58
70
56
72
57
57
56
77 84
64
55
65
56
65
64 70 6355
55
56
65
55
75
56
90
54
7674
61 64
54
55
54
89
60
91
83
63
54
73
59
54
57
95 88
82
58
72 93
92
94 87
85
63
86
81
71
80
7079 84 90
90
56
91
89
89
55
54
61
60
78 83 9288
9188
86
777482 95
59
93 87
94
87
85
92 85
7573
72
86
58
65 76
84
74
70
84
73
82
72
748095
93 83
94
64
81
80
71
71
57
70
63
79
56
83
79 75
80
81
81
82
73
74
78
61
77
78 7370 75
72
55
60
70
57
76
71
58
65
59
54
65
56
76
75 72
77
55
7179
64
54
63
64
78
60
59
76
63
63
77
64
61
61
60
65
65
63
57
58
64
58
61
60
59
57
61
59
56
55
56
55
57
54
56
60
58
54
57
56
59
55
54
58
55
54
.025
.05
.1
.25
.5
1
2.5
5
10
25
50
Avg Assets per Return / CPI
100
250
Note: Log scale is used for the x-axis. The label is the year of the observation.
Source: Authors’ calculation using SOI Corporate Returns.
29
500
90
89
88
9187
92
86
9484
9585
93
74
70
83
827571
72
7673
80
79
78
81
77
60
61
65
59
57
63
58
64
56
55
54
Figure 3. The Estimated Tax Effect as a Function of Asset Size
0.6
Estimated tax coefficient
0.5
0.4
tax coefficient
0.3
95% confidence interval
0.2
0.1
0
$10
$100
$1,000
$10,000
-0.1
Real assets on log scale, thousand dollars
30
$100,000
$1,000,000