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The impact of thin-capitalization rules on the capital structure of multinational firms

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  • Buettner, Thiess
  • Overesch, Michael
  • Schreiber, Ulrich
  • Wamser, Georg

Abstract

This paper analyzes the effectiveness of limitations of the tax deductibility of interest expenses for multinational corporations, so-called thin-capitalization rules. The empirical investigation exploits a large micro-level panel dataset of multinational firms to analyze the effects of thin-capitalization rules on the capital structure of foreign subsidiaries located in OECD countries in the time period between 1996 and 2004. The findings indicate that thin-capitalization rules effectively reduce the incentive to use internal loans for tax planning but result in higher external debt.

Suggested Citation

  • Buettner, Thiess & Overesch, Michael & Schreiber, Ulrich & Wamser, Georg, 2012. "The impact of thin-capitalization rules on the capital structure of multinational firms," Journal of Public Economics, Elsevier, vol. 96(11), pages 930-938.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:11:p:930-938
    DOI: 10.1016/j.jpubeco.2012.06.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate income tax; Multinational firms; Capital structure; Thin-capitalization rules; Firm-level data;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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