NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Converting Corporations to Partnerships through Leverage: Theoretical and Practical Impediments

Myron S. Scholes, Mark A. Wolfson

NBER Working Paper No. 3092
Issued in September 1989
NBER Program(s):PE, ME

We explore the degree to which debt financing can reduce the corporate-level tax on income in the U.S.. Although we show that debt is capable of shielding the competitive rate of return on projects from the corporate-level tax, debt financing cannot shield the positive net present value portion of project returns. Since nontax factors preclude corporate activities from being 100% debt-financed, a portion of the competitive return to corporate activity is also subject to double taxation. We also consider alternative mechanisms that serve to convert the corporate tax to a personal tax (or a partnership tax). These include other claims that give rise to tax deductible payments to the corporation such as obligations to employees, lessors and suppliers. As we show, all of these alternatives are limited in their ability to eliminate the corporate-level tax.

download in pdf format
   (296 K)

download in djvu format
   (212 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3092

Published: Debt, Taxes, and Corporate Restructuring, ed. John B. Shoven and Joel Waldfogel. Washington, DC: Brookings Institution, 1990.

Users who downloaded this paper also downloaded* these:
Scholes and Wolfson w3094 Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities
Bulow and Scholes Who Owns the Assets in a Defined-Benefit Pension Plan?
Bulow and Scholes w0924 Who Owns the Assets in a Defined Benefit Pension Plan
Scholes and Wolfson w3095 The Effects of Changes in Tax Laws on Corporate Reorganization Activity
Scholes, Wilson, and Wolfson w4171 Firms' Responses to Anticipated Reductions in Tax Rates: The Tax Reform Act of 1986
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us