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Capital Structure and International Debt Shifting

47 Pages Posted: 25 Jul 2006  

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Gaëtan Nicodème

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

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Date Written: July 2006

Abstract

This paper presents a model that relates a multinational firm's optimal debt policy to taxation and to non-tax factors such as the desire to prevent bankruptcy. The model yields the predictions that a multinational's indebtedness in a country depends on national tax rates and differences between national and foreign tax rates. These differences matter as multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested with the aid of a broad European data set combining firm-level data and information on the international tax treatment of dividend and interest streams. Corporate debt policy indeed appears to reflect national corporate tax rates and international corporate tax rate differences but not nonresident dividend withholding taxes.

Keywords: corporate taxation, financial structure, debt shifting

JEL Classification: F23, G32, H25

Suggested Citation

Huizinga, Harry and Laeven, Luc and Nicodème, Gaëtan, Capital Structure and International Debt Shifting (July 2006). Available at SSRN: https://ssrn.com/abstract=918460 or http://dx.doi.org/10.2139/ssrn.918460

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Luc A. Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Gaetan Nicodeme

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

CEPR and CESifo The views expressed in the article are those of the author and should not be attributed to the European Commission.

No Address Available

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