Working Paper No. 841

Does the Debt Tax Shield Distort Ownership Efficiency?

Published: June 11, 2010, revised May 2011 and September 2017Pages: 17Keywords: Acquisitions; Capital Gains Tax; Corporate Tax; LBOs; M&As; Ownership; Private Equity; Tax ShieldsJEL-codes: D20; G32; G33; G34; H25; H32; L19; L22

Does the Debt Tax Shield Distort Ownership Efficiency? Pehr-Johan Norbäck, Lars Persson and Joacim Tåg


The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and thus in optimal use of leverage. We show that the debt tax shield need not always distort ownership efficiency. Assets end up with the socially preferred owner when differences in financial and productive expertise between bidders is small and better financial expertise reduces expected bankruptcy costs.

Pehr-Johan Norbäck

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Lars Persson

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Ph: +46 8 665 4504
lars.persson@ifn.se

Joacim Tåg

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Ph: +46 8 665 4524
joacim.tag@ifn.se

Integrating Immigrants into the Nordic Labour Markets

An Overall Perspective

Pages-from-2019-Calmfors-Gassen---Integrating-Immigrants-into-the-Nordic-Labour-Markets.gif

Denmark, Finland, Norway and Sweden face similar problems of integrating large groups of immigrants, especially low-educated ones from outside the EU, into their labour markets. In this volume, edited by Lars Calmfors, IFN, and Nora Sánchez Gassen in cooperation with researchers from across the Nordic Region analyse how labour market integration of immigrants can be promoted. 

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