[go: up one dir, main page]

  EconPapers    
Economics at your fingertips  
 

The Impact of Introducing an Interest Barrier: Evidence from the German Corporation Tax Reform 2008

Hermann Buslei and Martin Simmler

No 1215, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In this study we investigate the impact of the thin capitalization rule (TCR), introduced in Germany in 2008, on firms' capital structure, investment and profitability. The identification of the causal effects is based on the escape clauses in the regulation using a difference-in-difference approach. Our results present evidence that firms strongly react in order to avoid the limited deductibility of interest expenses: They either decrease their debt ratio or split their assets to use the exemption limit. The latter is especially used by firms with an interest result around the exemption limit of the interest barrier. In case the debt ratio is reduced, our results present evidence for a proportional increase of firms' tax base. In general, in the short term, no negative investment effects are caused by the TCR. This suggests that a part of the firms is able to substitute equity for debt at low costs or expects to be able to circumvent the regulation. However, investment might also be fixed in the short-run for example due to long-lasting contracts.

Keywords: Thin capitalization; earnings stripping rule; debt ratio; profitability; investment (search for similar items in EconPapers)
JEL-codes: G32 H25 H26 (search for similar items in EconPapers)
Pages: 38 p.
Date: 2012
New Economics Papers: this item is included in nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.402715.de/dp1215.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1215

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().

 
Page updated 2024-12-22
Handle: RePEc:diw:diwwpp:dp1215