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International Debt Shifting: Do Multinationals Shift Internal or External Debt?

Author

Listed:
  • Jarle Møen

    (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway)

  • Dirk Schindler

    (Department of Economics, University of Konstanz, Germany)

  • Guttorm Schjelderup

    (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway)

  • Julia Tropina

    (Department of Economics, Norwegian School of Economics, 5045 Bergen, Norway)

Abstract

We examine the capital structures of multinational companies. Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low-tax countries to affiliates in high-tax countries. Previous papers have omitted either internal debt or external debt from the analysis. We are the first to model the companies’ choice between internal and external debt shifting, and show that it is optimal to use both types of debt in order to save taxes. Using a large panel of German multinationals, we find strong empirical support for our model. The estimated coefficients suggest that internal and external debt shifting are of about equal relevance.

Suggested Citation

  • Jarle Møen & Dirk Schindler & Guttorm Schjelderup & Julia Tropina, 2011. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Working Paper Series of the Department of Economics, University of Konstanz 2011-40, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1140
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate taxation; multinationals; capital structure; international debt-shifting; tax avoidance;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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