Abstract
Abstract Using confidential tax return data, we provide a unique research setting in which the Belgian notional interest deduction (NID) is replaced by the Allowance for Growth and Investment (AGI) as it is proposed by the European Commission. Our results show that the AGI would be a more viable option from a budgetary view. From a company view, however, introducing an AGI system would increase the probability of a higher effective tax rate (ETR). Especially large companies would be harmed as they would face a 7.6 percentage point higher probability of an ETR increase compared with SMEs. Furthermore, we find that there is a positive relationship between the equity ratio and the increased ETR, which is stronger for large firms compared to SMEs. This is in line with previous studies stating that large firms adjusted more aggressively to the NID by increasing their equity ratio more heavily than SMEs. However, large firms still face an ETR that is on average 10.4 percentage points lower compared with SMEs, indicating that the AGI is insufficient to undo the unequal level playing field between large and small companies. (JEL codes: H21, G32, H25, K34).
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
