This paper uses recent developments in the theory of optimal capital structure to demonstrate how the federal corporate income tax with an interest deduction, but without a corresponding dividend deduction, misallocates capital within the corporate sector by encouraging investment in low-risk, low-growth projects employing tangible assets over high-risk, high-growth projects employing intangible assets.
Knoll, Michael S., "Taxing Prometheus: How the Corporate Interest Deduction Discourages Innovation and Risk-Taking" (1993). Faculty Scholarship. 1150.
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