Corporate Taxes and Internal Borrowing within Multinational Firms

Peter Egger, Christian Keuschnigg, Valeria Merlo and Georg Wamser

American Economic Journal: Economic Policy, 2014, vol. 6, issue 2, 54-93

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-codes: F23 G32 H25 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/pol.6.2.54
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Citations: View citations in EconPapers (47)

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Related works:
Chapter: Corporate Taxes and Internal Borrowing within Multinational Firms (2012)
Working Paper: Corporate Taxes and Internal Borrowing within Multinational Firms (2012)
Working Paper: Corporate Taxes and Internal Borrowing within Multinational Firms (2012)
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