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Firm Responses to an Interest Barrier: Empirical Evidence
1 : VATT Institute for Economic Research
(VATT)
-
Website
VATT Institute for Economic Research Arkadiankatu 7 00100 Helsinki -
Finland
This paper studies the effects of an interest barrier that was introduced in Finland to
restrict the profit-shifting opportunities of multinational enterprises (MNEs). We
employ full population data of Finnish, Swedish and Danish MNEs and a difference-indifferences
methodology, where Swedish and Danish MNEs serve as a control group.
We find that Finnish MNEs responded to the interest barrier by decreasing their
financial expenses. Subsidiaries decreased also their long-term debt levels. We do not
find evidence of debtshifting being replaced by transfer pricing. Neither do we find
evidence of changes in output, suggesting that the interest barrier did not create
distortions by affecting the real activity of MNEs.
