Taxes and the Theory of Trade Debt

  • Author(s): IVAN E. BRICK, WILLIAM K. H. FUNG
  • Published: Apr 30, 2012
  • Pages: 1169-1176
  • DOI: 10.1111/j.1540-6261.1984.tb03900.x


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.

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