Evaluating the effects of ACE systems on multinational debt financing and investment
Shafik Hebous and
Martin Ruf
Journal of Public Economics, 2017, vol. 156, issue C, 131-149
Abstract:
Theory recommends aligning the tax treatment of debt and equity. A few countries, notably Belgium, have introduced an allowance for corporate equity (ACE) to achieve tax neutrality. We study the effects of adopting an ACE on debt financing, passive investment, and active investment of multinational firms, using high-quality administrative data on virtually all German-based multinationals. We use two main identification strategies, based on (1) synthetic control methods and (2) variations across affiliates within the multinational group. Our results suggest that an ACE reduces the corporate debt ratio of multinational affiliates. Additionally, an ACE increases intra-group lending and other forms of passive investment but has no effects on production investment of multinational affiliates. The findings indicate that a unilateral implementation of an ACE system generates a tax planning opportunity using a structure combining the benefits from the ACE with interest deductions.
Keywords: ACE; Financial structure; Corporate taxation; Debt bias; Multinational firms (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272717300245
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Evaluating the Effects of ACE Systems on Multinational Debt Financing and Investment (2018) 
Working Paper: Evaluating the Effects of ACE Systems on Multinational Debt Financing and Investment (2015) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:156:y:2017:i:c:p:131-149
DOI: 10.1016/j.jpubeco.2017.02.011
Access Statistics for this article
Journal of Public Economics is currently edited by R. Boadway and J. Poterba
More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().