Interest deductibility provides a strong incentive for debt finance. However, increasing the proportion of debt may lead to larger bankruptcy costs.
The deductibility of home mortgage interest encourages excess investment in housing.
The tax- deductibility of mortgage interest encourages people to buy houses rather than rent flats, buy bigger properties rather than smaller ones and therefore to spread out.
It needs to show, both to investors and to politicians, that its returns are based on something more than exploiting cheap finance and the tax-deductibility of interest payments.
The Treasury proposes limiting the deductibility of expenses firms incur in America to support foreign operations that have paid no American tax.
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