Firm Responses to an Interest Barrier: Empirical Evidence

Jarkko Harju, Ilpo Kauppinen and Olli Ropponen

No 90, Working Papers from VATT Institute for Economic Research

Abstract: This paper studies the effects of an interest barrier that was introduced in Finland to restrict the profit-shifting opportunities of multinational enterprises (MNEs). We employ full population data of Finnish, Swedish and Danish MNEs and a difference-in-differences methodology, where Swedish and Danish MNEs serve as a control group. We find that Finnish MNEs responded to the interest barrier by decreasing their financial expenses. Subsidiaries decreased also their longterm debt levels. We do not find evidence of debt-shifting being replaced by transfer pricing. Neither do we find evidence of changes in output, suggesting that the interest barrier did not create distortions by affecting the real activity of MNEs.

Keywords: corporate taxation; multinational companies; yritysverotus; monikansalliset yritykset; pääomarakenne; korkovähennysrajoitus; Business regulation and international economics; G32; H25; H26 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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https://www.doria.fi/handle/10024/148927

Related works:
Working Paper: Firm Responses to an Interest Barrier: Empirical Evidence (2023)
Working Paper: Firm Responses to an Interest Barrier: Empirical Evidence (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fer:wpaper:90

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