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α: calibrated so average coauthorship-adjusted count equals average raw count
This paper analyzes the effectiveness of limitations of the tax deductibility of interest expenses for multinational corporations, so-called thin-capitalization rules. The empirical investigation exploits a large micro-level panel dataset of multinational firms to analyze the effects of thin-capitalization rules on the capital structure of foreign subsidiaries located in OECD countries in the time period between 1996 and 2004. The findings indicate that thin-capitalization rules effectively reduce the incentive to use internal loans for tax planning but result in higher external debt.