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Corporate Taxes and Internal Borrowing within Multinational Firms

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  • Peter Egger
  • Christian Keuschnigg
  • Valeria Merlo
  • Georg Wamser

Abstract

This study develops a theoretical model of a multinational firm with an internal capital market. Hypotheses regarding the role of local versus foreign characteristics such as profit tax rates, lack of institutional quality, financial underdevelopment, and productivity for internal debt financing at the level of foreign affiliates are derived and assessed empirically in a panel dataset covering the universe of German multinationals. We show that differences in nontax incentives given by fundamentals in local and foreign markets can offset or reinforce tax incentives. The results point at a many times higher tax-sensitivity of internal debt financing compared to previous research.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 6 (2014)
Issue (Month): 2 (May)
Pages: 54-93

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Handle: RePEc:aea:aejpol:v:6:y:2014:i:2:p:54-93

Note: DOI: 10.1257/pol.6.2.54
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Cited by:
  1. Marko Köthenbürger & Michael Stimmelmayr, 2013. "Taxing Multinationals in the Presence of Internal Capital Markets," CESifo Working Paper Series 4353, CESifo Group Munich.
  2. Ledyaeva, Svetlana & Karhunen, Päivi & Kosonen, Riitta, 2013. "Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions," European Journal of Political Economy, Elsevier, vol. 32(C), pages 1-25.

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