Corporate Taxes and Internal Borrowing within Multinational Firms
Journal
American Economic Journal: Economic Policy (AEJ: EP)
ISSN
1945-7731
ISSN-Digital
1945-774X
Type
journal article
Date Issued
2014-05
Author(s)
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. (JEL F23, G32, H25)
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. (JEL F23, G32, H25)
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
American Economic Association
Publisher place
Nashville, Tenn.
Volume
6
Number
2
Start page
54
End page
93
Pages
40
Subject(s)
Eprints ID
234832