Graduate School of Management, Rutgers University. We would like to thank Jack Broyle, Ian Cooper, Julian Franks, Stewart Hodges, E. Han Kim, Stephen Schaefer, Bob Schwartz, and David Whitcomb for helpful suggestions. Comments from a referee of this Journal are gratefully acknowledged. We, of course, retain full responsibility for any errors. An earlier version of this paper was presented at the ninth annual meeting of the European Finance Association, Jerusalem, Israel, 1982.
Taxes and the Theory of Trade Debt
Article first published online: 30 APR 2012
1984 The American Finance Association
The Journal of Finance
Volume 39, Issue 4, pages 1169–1176, September 1984
How to Cite
BRICK, I. E. and FUNG, W. K. H. (1984), Taxes and the Theory of Trade Debt. The Journal of Finance, 39: 1169–1176. doi: 10.1111/j.1540-6261.1984.tb03900.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
In this paper, we show that taxes motivate the flow of trade credit without involving the assumption of credit market imperfections. The direction of trade credit flow depends on the distribution of marginal tax rates among buyers and sellers. In equilibrium, the trade credit decision follows a tax-induced clientele on both the supply and demand side.