Capital Structure and International Debt Shifting
IMF Working Papers, February 1, 2007
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Bibliographic details
- Authors: Luc Laeven, Harry Huizinga, Gaetan Nicodeme
- Published: February 1, 2007
- Series: IMF Working Papers
Research question and model
- Presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors.
- Key model prediction:
- 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.
- Differences between national and foreign tax rates matter because multinationals have an incentive to shift debt to high-tax countries.
Data and empirical approach
- Empirical testing using:
- A novel firm-level dataset for European multinationals and their subsidiaries.
- Newly collected data on the international tax treatment of dividend and interest streams.
Principal empirical findings
- Corporate debt policy reflects:
- Domestic corporate tax rates.
- Differences in international tax systems (i.e., national versus foreign tax treatment).
- Empirical results are consistent with the model’s prediction that multinationals shift debt across countries in response to tax differentials.
Key subjects and keywords
- Subject: Credit, Marginal effective tax rate, Tax incentives, Transnational corporations, Withholding tax
- Keywords: capital structure, multinational firm, WP
Contribution and implications
- Findings contribute to understanding how corporate debt policy is set in an international context by demonstrating that both domestic tax rates and international tax-system differences influence multinational firms’ indebtedness patterns.
Source: Capital Structure and International Debt Shifting, IMF Working Papers 2007/039 (February 1, 2007).