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Capital Structure and International Debt Shifting

Author/Editor: Huizinga, Harry | Laeven, Luc | Nicodeme, Gaetan
Authorized for Distribution: February 1, 2007
Electronic Access: Free Full Text (PDF file size is 308KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 07/39
Subject(s): Debt | Tax rates | Tax policy | Capital | Economic models
Author's keyword(s): Corporate taxation | financial structure | debt shifting
 
English  
    Published:   February 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007039   Pages:   37
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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