Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/38967
Authors: 
Barion, Francesca
Miniaci, Raffaele
Panteghini, Paolo M.
Parisi, Maria Laura
Year of Publication: 
2010
Series/Report no.: 
CESifo working paper Public Finance 2985
Abstract: 
This article aims at analyzing the link between subsidiaries' capital structure and taxation in Europe. First we introduce a trade-off model, which studies a MNCs' financial strategy and shows how debt policy allows multinational groups to shift profits from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the percentage of profit shifting, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) subsidiaries' leverage increases with the statutory tax rate, levied in the country where it operates; ii) this positive effect is lower, the higher the parent company tax rate is. Furthermore, an increase in the parent company's tax rate is estimated to raise its subsidiaries' leverage.
Subjects: 
capital structure
default
multinationals
profit shifting
taxation
JEL: 
G31
H25
H32
Document Type: 
Working Paper

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