Return on equity (RoE) and debt leverage

The return on equity (RoE) is structurally higher in the United States than in the euro zone or Japan, which is mainly due to the leverage effect (share buybacks financed by corporate debt in the United States). When comparing returns on physical capital, we see that they are similar in all three countries/regions. It is debt leverage and not return on equity or income distribution that explains why the return on equity is higher in the United States than in the euro zone or Japan. This shows the very significant effect that a rise in interest rates would have on the return on equity of US companies, and therefore on equity markets: a marked rise in interest rates would remove the leverage boost to the return on equity, particularly in the United States.