At a cost: The real effects of thin capitalization rules

Ruud de Mooij and Li Liu

Economics Letters, 2021, vol. 200, issue C

Abstract: Thin capitalization rules (TCRs) aim to mitigate profit shifting by multinational corporations (MNCs) but, by raising the cost of capital for affected affiliates, can also negatively affect real investment. Exploiting unique panel data on multinational companies in 34 countries during 2006–2014, we estimate that the size of this adverse investment effect can be large, and dependent on the statutory corporate tax rate and the tightness of the safe-haven ratio. Negative investment effects are more pronounced for highly-levered firms for which TCRs are more likely to be binding.

Keywords: Debt shifting; Multinational investment; Corporate tax policy; Thin capitalization rules (search for similar items in EconPapers)
JEL-codes: F23 H25 H87 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: At A Cost: The Real Effects of Thin Capitalization Rules (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000227

DOI: 10.1016/j.econlet.2021.109745

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