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Capital structure and international debt shifting - Harry Huizinga, Luc Laeven and Gaëtan Nicodème

Harry Huizinga (Tilburg University), Luc Laeven (International Monetary Fund) and Gaëtan Nicodème (European Commission)

Capital structure and international debt shifting - Harry Huizinga, Luc Laeven and Gaëtan Nicodèmepdf(515 kB) Choose translations of the previous link 

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 as 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. The 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 understanding how corporate debt policy is set in an international context.

(European Economy. Economic Papers. 263. December 2006. Brussels. 42pp. Tab. Free.)

KC-AI-06-263-EN-C (online)
ISBN 92-79-03839-7 (online)
ISSN 1725-3187

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