Capital Structure and International Debt Shifting

H.P. Huizinga, L. Laeven, G. Nicodeme

Research output: Book/ReportReport


This paper presents a model that relates a multinational firm's optimal debt policy to taxation and to non-tax factors such as the desire to prevent bankruptcy. The model yields the predictions that a multinational's indebtedness in a country depends on national tax rates and differences between national and foreign tax rates. These differences matter as multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested with the aid of a broad European data set combining firm-level data and information on the international tax treatment of dividend and interest streams. Corporate debt policy indeed appears to reflect national corporate tax rates and international corporate tax rate differences but not non-resident dividend withholding taxes.
Original languageEnglish
Place of PublicationLondon
Number of pages49
Publication statusPublished - 2006

Publication series

NameCEPR Discussion Paper


  • corporate taxation
  • financial structure
  • debt shifting


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