International Tax and Public Finance

, Volume 23, Issue 5, pp 785–797 | Cite as

Restricted interest deductibility and multinationals’ use of internal debt finance

  • Thiess Buettner
  • Michael Overesch
  • Georg Wamser


This paper reconsiders the role of interest deductibility for internal debt financing of multinational corporations (MNCs). We provide quasi-experimental evidence using restrictions on interest deductibility through thin-capitalization rules. Explicitly distinguishing between firms subject to a binding restriction and unrestricted firms, a panel data sample selection model is used to explore the tax sensitivity of the capital structure of foreign subsidiaries of MNCs. Our results confirm that the tax incentive for using internal loans is effectively removed for restricted subsidiaries. While internal debt financing of unrestricted subsidiaries positively responds to taxes, the effects are relatively small.


Corporate taxation Multinational firms Internal debt  Thin-capitalization rules Sample selection 

JEL Classification

H25 G32 F23 



Data access by the Deutsche Bundesbank and financial support by the German Science Foundation (DFG) are gratefully acknowledged.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Thiess Buettner
    • 1
    • 2
  • Michael Overesch
    • 3
  • Georg Wamser
    • 2
    • 4
  1. 1.FAUErlangen-NurembergGermany
  2. 2.CESifoMunichGermany
  3. 3.University of CologneCologneGermany
  4. 4.University of TuebingenTüebingenGermany

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