Capital Structure and International Debt Shifting
39 Pages Posted: 4 Mar 2007
There are 3 versions of this paper
Capital Structure and International Debt Shifting
Capital Structure and International Debt Shifting
Capital Structure and International Debt Shifting
Date Written: February 2007
Abstract
This paper presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm's indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context.
Keywords: Debt, Tax rates, Tax policy, Capital, Economic models
JEL Classification: F23, G32, H25
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Fiscal Paradise: Foreign Tax Havens and American Business
By James R. Hines Jr. and Eric M. Rice
-
Altered States: Taxes and the Location of Foreign Direct Investment in America
-
Tax Policy and Foreign Direct Investment in the United States
-
Coming Home to America: Dividend Repatriations by U.S. Multinationals
-
Taxation and Foreign Direct Investment: A Synthesis of Empirical Research
By Ruud A. De Mooij and Sjef Ederveen
-
Income Shifting in U.S. Multinational Corporations
By David Harris, Randall Morck, ...