ManagementBusiness EconomicsEconomicsCorporate TaxationCost Of CapitalTaxationCorporate Income TaxMarginal Cost Of CapitalCorporate HedgingMarginal Tax Rate AnalysisMarginal Tax Rate EffectsMarginal Tax Rate IncidenceStatutory Tax RateTax EstimationTax-advantaged FinancingTaxable Income Computation
This paper focuses on how to best measure the corporate marginal tax rate, which is an important input into analysis of the cost of capital, financing policy, corporate hedging, corporate reorganizations, and the relative pricing between taxable and tax-advantaged securities. The results indicate that the simulated tax rate used by Shevlin (1990) and Graham (1996) is the best available proxy for the true marginal tax rate; however, the simulated variable is difficult to calculate. If the simulated rate is unavailable, a very easy-to-calculate trichotomous variable and the statutory marginal tax rate are reasonable alternatives, better than most commonly used tax variables. The difficult task of forecasting taxable income is also discussed.