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Capital Structure and International Debt Shifting
Author:
Mr. Luc Laeven
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Harry Huizinga null

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Gaetan Nicodeme null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2007: Issue 039
Language:
English
Publication Date:
01 Feb 2007
DOI:
https://doi.org/10.5089/9781451866032.001
ISBN:
9781451866032
ISSN:
1018-5941
Pages:
37
Keywords:
WP; capital structure; multinational firm
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors. The model yields the prediction that 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. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund