Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110817
Authors: 
Gresik, Thomas
Schindler, Dirk
Schjelderup, Guttorm
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5314
Abstract: 
Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In this paper, we analyze the effect on FDI and host country welfare of thin capitalization rules when multinationals can also shift income via transfer prices. We show that while permissive thin capitalization limits may be needed in developing countries to attract FDI, the amount of debt financing allowed by the permissive limits facilitates more aggressive transfer pricing and results in lower host country welfare.
Subjects: 
multinationals
profit shifting
foreign direct investments
welfare
JEL: 
D69
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.