Abstract
We identify a multitude of reforms across 29 OECD countries from 1981 through 2009 that affected statutory corporate or personal tax rates. We use those tax reforms as natural experiments to estimate the market value of the tax benefits of debt financing. We report time-series evidence that tax reforms are followed by large changes in firm value. However, the impact of tax reforms on value is greatly mitigated by the presence of leverage. Consistent with a tax story, the value of debt tax savings is greater among top tax payers, highly profitable firms, and in countries where tax laws are more strongly enforced. The results are robust to a battery of endogeneity tests.
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