Taxes and Financial Distress: Evidence from Establishment-Level Data / Mara Faccio, Stefano Manfredonia.

Format:

Book

Author/Creator:

Faccio, Mara.

Contributor:

Manfredonia, Stefano.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35134.

NBER working paper series no. w35134

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

We use establishment-level data to examine the relation between corporate taxes and financial distress. Using a border discontinuity design, we document that higher corporate income tax rates significantly increase financial distress, particularly for geographically concentrated firms, with sizable spillovers across establishments. We further investigate how taxes affect establishment-level financial distress by exploiting the interest limitation rule introduced by the 2017 Tax Cuts and Jobs Act. Using a difference-in-differences design, we find that affected firms experience a decline in financial distress. This occurs because the reduced tax advantage of debt induces firms to deleverage, reducing financial distress through capital structure adjustments.

Notes:

April 2026.

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