Findings from Swiss Federal Institute of Technology Reveals New Findings on European Economies (Why countries differ in thin capitalization rules:…

Findings from Swiss Federal Institute of Technology Reveals New Findings on European Economies (Why countries differ in thin capitalization rules: The role of financial development)

By a News Reporter-Staff News Editor at Economics Week -- Investigators publish new report on European Economies. According to news originating from Zurich, Switzerland, by VerticalNews editors, the research stated, "The purpose of thin capitalization rules is to limit multinational firms' possibilities of engaging in tax planning via debt shifting. This paper analyzes the optimal design of thin capitalization rules in the presence of financial frictions when a host country, in the first stage, chooses the type of thin capitalization rule and then, in the second stage, decides about the strictness."

Our news journalists obtained a quote from the research from the Swiss Federal Institute of Technology, "We show that welfare under a safe haven rule is higher than under an earnings stripping rule if firms are not able to manipulate the interest rate on internal loans. Welfare, however, can be higher under an earnings stripping rule if firms are able to manipulate the interest rate on internal loans. We also show that the optimal level of internal interest deductions decreases with the financial development of the host country."

According to the news editors, the research concluded: "Our results are consistent with countries' actual policy choice."

For more information on this research see: Why countries differ in thin capitalization rules: The role of financial development. European Economic Review, 2017;91():1-14. European Economic Review can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier - www.elsevier.com; European Economic Review - www.journals.elsevier.com/european-economic-review/)

The news correspondents report that additional information may be obtained from M. Mardan, Swiss Fed Inst Technol, NoCeT, Dept. of Management Technol & Econ, CH-8092 Zurich, Switzerland.

Keywords for this news article include: Zurich, Switzerland, Europe, European Economies, Swiss Federal Institute of Technology.

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