American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Corporate Taxes and Internal Borrowing within Multinational Firms
American Economic Journal: Economic Policy
vol. 6,
no. 2, May 2014
(pp. 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.Citation
Egger, Peter, Christian Keuschnigg, Valeria Merlo, and Georg Wamser. 2014. "Corporate Taxes and Internal Borrowing within Multinational Firms." American Economic Journal: Economic Policy, 6 (2): 54–93. DOI: 10.1257/pol.6.2.54Additional Materials
JEL Classification
- F23 Multinational Firms; International Business
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
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