Prof. Hans Degryse, Mr. Kristjan Markovc, Mrs. Tong Zhao,

Economics, Entrepreneurial economics, Financial economics

 In December 2012, Slovenia uniquely adopted standardized expense (SE) taxation for all eligible firms, implementing a nationwide revenue-based model. Under SE taxation, firms declare expenses as 80% of total revenues regardless of actual costs, resulting in a fixed 20% profit margin used for loan applications as mandated by the Bank of Slovenia. This policy offers a rare opportunity to study how revenue-based taxation affects firms' access to external financing, loan characteristics, and banking sector responses. This research investigates whether participation in SE taxation impacts firms’ ability to secure loans, considering that fixed profitability may restrict loan eligibility during economic growth or increase default risks during downturns. Additionally, it explores how SE taxation influences banks’ interest rate revenues and loan market competition, hypothesizing that banks with higher exposure to SE-taxed firms may adjust loan terms in response to changes in demand and risk profiles.Using comprehensive panel data from Slovenia’s Financial Administration, Orbis Global, and the Bank of Slovenia’s credit registry (2002-2021), the study employs empirical models to assess the relationship between SE taxation and loan metrics such as interest rates, loan amounts, and loan growth. The analysis controls for firm-specific characteristics and utilizes fixed effects to account for unobserved heterogeneity. A secondary model examines the impact of banks’ exposure to SE-taxed firms on loan characteristics, addressing potential supply shocks and competitive dynamics within the banking sector. This research contributes to the literature by exploring the underexamined channel of fixed revenue-based taxation and its effects on tax-deductible interest expenses and investment incentives. Findings aim to inform policy development by clarifying how SE taxation influences firm financing and banking operations, providing insights for other economies considering similar tax reforms.