## Capital Structure and International Debt Shifting

_IMF Working Papers, February 1, 2007_

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**Canonical URL:** [Capital Structure and International Debt Shifting](https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-structure-and-international-debt-shifting-20074)

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## Bibliographic details
- Authors: Luc Laeven, Harry Huizinga, Gaetan Nicodeme
- Published: February 1, 2007
- Series: IMF Working Papers

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### 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).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-structure-and-international-debt-shifting-20074_