Firm responses to an interest barrier: empirical evidence

Jarkko Harju, Ilpo Kauppinen and Olli Ropponen

Fiscal Studies, 2025, vol. 46, issue 2, 211-237

Abstract: In this paper, we study the effects of an interest barrier (IB) that was introduced in Finland in 2014 to restrict the profit‐shifting opportunities of multinational enterprises (MNEs). We employ data from the Orbis database on Finnish, Swedish and Danish MNEs and a difference‐in‐differences methodology, where Swedish and Danish MNEs serve as a control group. We examine the effects of the IB on financial expenses, debt levels and overall economic activity of firms. We find that Finnish MNEs responded to the IB by decreasing their financial expenses. We also find that the most affected firms decreased their debt levels due to the reform. Our results also suggest that the financial expense response is followed by a change in the use of transfer pricing as a method to shift profits between tax jurisdictions. We do not find evidence of total output changes among treated firms, which suggests that the IB did not affect the real activity of the treated MNEs.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1475-5890.12401

Related works:
Working Paper: Firm Responses to an Interest Barrier: Empirical Evidence (2023)
Working Paper: Firm Responses to an Interest Barrier: Empirical Evidence (2017)
Working Paper: Firm Responses to an Interest Barrier: Empirical Evidence (2017)
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:wly:fistud:v:46:y:2025:i:2:p:211-237

Access Statistics for this article

More articles in Fiscal Studies from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().