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Abstract
Thin capitalization rules have become an important element in the corporate tax systems of developed countries. This paper sets up a model where national and multinational firms choose tax-efficient financial structures and countries compete for multinational firms through statutory tax rates and thin capitalization rules that limit the tax-deductibility of internal debt flows. In a symmetric tax competition equilibrium, each country chooses inefficiently low tax rates and inefficiently lax thin capitalization rules. We show that a coordinated tightening of thin capitalization rules benefits both countries, even though it intensifies competition via tax rates. When countries differ in size, the smaller country not only chooses the lower tax rate but also the more lenient thin capitalization rule.
Item Type: | Journal article |
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Faculties: | Economics Economics > Chairs > Seminar for Economic Policy |
Subjects: | 300 Social sciences > 330 Economics |
Language: | English |
Item ID: | 20421 |
Date Deposited: | 15. Apr 2014, 08:59 |
Last Modified: | 04. Nov 2020, 13:01 |
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Firms’ financial choices and thin capitalization rules under corporate tax competition. (deposited 15. Apr 2014, 08:59)
- Firms’ financial choices and thin capitalization rules under corporate tax competition. (deposited 15. Apr 2014, 08:59) [Currently Displayed]