Petutschnig & Rünger (2022): Austria's Allowance for Corporate Equity and Capital Structure

Summary

Matthias Petutschnig and Silke Rünger, "The Effect of an Allowance for Corporate Equity on Capital Structure: Evidence From Austria" (Public Finance Review 50(5), 2022, pp. 597–642), is a peer-reviewed firm-level evaluation of Austria's allowance for corporate equity — a rent-targeting corporate-tax design that grants a notional deduction on equity so that only above-normal returns are taxed and the tax subsidy to debt is removed. It adds a third country to the wiki's ACE evidence base, alongside Italy and Belgium.

Findings

The authors state their result plainly: "We find that the Austrian ACE tax system increased corporate equity ratios by approximately 1.36 to 2.30 percentage points."[1] The direction is the same debt-bias correction found in Italy and Belgium — firms hold more equity relative to debt when the tax penalty on equity is neutralized — replicated on independent Austrian data.

The paper also carries a candid design lesson. It finds "significant differences in the application of the ACE tax system depending on firm-specific dividend levels and firm-specific ownership structures," and in particular that "the cost of constraining dividends appears to be higher than the tax benefit of the ACE tax system," so that "firms with dispersed ownership refrain from applying the ACE tax system."[1] Take-up — and therefore the leverage effect — depends on firm governance, not only on the tax parameter: a real-world limit on how uniformly a rent-only base reshapes capital structure.

Why This Matters for the Geoist Case

The debt-bias correction is the best-replicated result in the rent-targeting corporate-tax literature, and this study strengthens that replication: Austria joins Italy and Belgium as an independent confirmation that exempting the normal return on equity shifts financing away from leverage. The take-up heterogeneity is the honest counterweight — the effect is real but conditional on which firms choose to use the allowance. Austria's ACE was itself later repealed, part of the political-fragility pattern the ACE page tracks across countries.

See Also

• Rent-targeting corporate taxes reduce debt bias — the outcome this study supports
• Allowance for Corporate Equity — the instrument and its country record
• Branzoli & Caiumi (2020) — the Italian incremental-ACE analogue
• Panier, Pérez-González & Villanueva (2015) — the Belgian full-stock ACE analogue
• Hebous & Ruf (2017) — the multinational-arbitrage caution

Sources

1. Matthias Petutschnig & Silke Rünger (2022), "The Effect of an Allowance for Corporate Equity on Capital Structure: Evidence From Austria," Public Finance Review 50(5): 597–642 — used for the ~1.36–2.30 pp equity-ratio increase and the dividend-constraint and ownership-structure take-up findings. Abstract quotations verified verbatim. Publication record (WU Vienna) · Public Finance Review 50(5): 597–642