In a recent article, Huizinga, Laeven and Nicodeme (2008) present a novel model that motivates an extensive empirical analysis of international debt shifting. We point out that the model fails to account for internal debt, and that once internal debt is properly accounted for, the external debt...

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...

There is a growing concern that governments lose substantial corporate tax revenue because of profit shifting through transfer-pricing and thin-capitalization strategies. Existing literature studies profit shifting and transfer pricing separately. In practice, the choice of debt-to-asset ratios...

Multinational companies can exploit the tax advantage of debt more aggressively than national companies. Besides utilizing the standard debt tax shield, multinationals can shift debt from affiliates in low-tax countries to affiliates in high-tax countries. We study the capital structure of...

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...

This paper sets up an imperfect-competition model of a small open economy, and undertakes a welfare comparison of the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). A main result is that a small open economy should levy a positive source tax on capital in...

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 studies the market and welfare effects of two main tax reforms - the Corporate Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE). Using an imperfect-competition model for a small open economy, it is shown that the well-known neutrality property of ACE does...