Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/49516
Authors: 
Møen, Jarle
Schindler, Dirk
Schjelderup, Guttorm
Tropina, Julia
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Public Finance 3519
Abstract: 
Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low tax countries to affiliates in high tax countries. Previous papers have either omitted internal debt or external debt from the analysis. We are the first to model the companies' choice between internal and external debt shifting and show that it is optimal for them to use both types of debt to save taxes. Using a large panel of German multinationals, we find strong empirical support for our model. The estimated coefficients suggest that internal and external debt shifting are of about equal relevance. Since the tax variables that determine the incentive to shift internal and external debt are correlated both with each other and with the host country tax rate, previous estimates of the tax sensitivity of debt suffer from omitted variable bias.
Subjects: 
corporate taxation
multinationals
capital structure
international debt-shifting
tax avoidance
JEL: 
H25
G32
F23
Document Type: 
Working Paper

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