Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/113770 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5449
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper examines how restrictions on the tax-deductibility of interest cost affect location choices of multinational corporations (MNCs). Many countries have introduced so-called thin-capitalization rules (TCRs) to prevent MNCs from shifting tax base to countries with lower tax rates. As of 2012, in our sample of 172 countries, 61 countries have implemented a TCR. Using information on nearly all new foreign investments of German MNCs, we provide a number of new and interesting insights in how TCRs affect the decision of where to locate foreign entities. These results include estimates of own- and cross-elasticities of location choice and also novel results on the relative importance of tax base vs. tax rate effects. We finally provide estimates for different uncoordinated as well as coordinated policy scenarios.
Subjects: 
corporate taxes
location choices
multinational corporations
thin capitalization laws
JEL: 
H20
H70
Document Type: 
Working Paper
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