Firms’ financial choices and thin capitalization rules under corporate tax competition

Andreas Haufler and Marco Runkel ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: Thin capitalization rules have become an important element in the corporate tax systems of developed countries. This paper sets up a model where national and multinational firms choose tax-efficient financial structures and countries compete for multinational firms through statutory tax rates and thin capitalization rules that limit the tax-deductibility of internal debt flows. In a symmetric tax competition equilibrium, each country chooses inefficiently low tax rates and inefficiently lax thin capitalization rules. We show that a coordinated tightening of thin capitalization rules benefits both countries, even though it intensifies competition via tax rates. When countries differ in size, the smaller country not only chooses the lower tax rate but also the more lenient thin capitalization rule.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (57)

Published in European Economic Review 6 56(2012): pp. 1087-1103

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Firms' financial choices and thin capitalization rules under corporate tax competition (2012)
Working Paper: Firms' financial choices and thin capitalization rules under corporate tax competition (2008)
Working Paper: Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition (2008)
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:lmu:muenar:20421

Access Statistics for this paper

More papers in Munich Reprints in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().