Template-type: ReDIF-Paper 1.0
Author-Name: Stefan Lutz
Author-Email: stefan.lutz@manchester.ac.uk
Author-Person: plu92
Author-Workplace-Name: University of Manchester, UK; Universidad Complutense de Madrid, Spain; 
	ICER, Torino, Italy; I.R.E.F., Luxembourg
Title: Effects of taxation on European multi-nationals’ financing and profits
Abstract: Important determinants of multinational firms’ choice of location include, besides resource cost 
	and infrastructure, the taxation regime through its effects on international pricing  and profits. 
	This paper investigates the effects of tax rates on firms’ profits and financing decisions  by 
	analyzing a panel of several hundred thousand European firms for the years 1985 to 2010.
	Results indicate that taxation has a negative effect on overall firm profits but not on returns on 
	shareholder funds. This is consistent with the observed positive effect of corporate taxation rates
	on the gearing ratio, i.e. the higher corporate tax rates in a particular jurisdiction the lower the 
	share of equity financing of firms residing in that jurisdiction. This may indicate that high-tax 
	jurisdictions deter  valuable  investment  by multinational enterprises because they provide 
	incentives to locate value-driving business parts requiring more equity financing elsewhere.
Classification-JEL: G0, H3, F2. 
Keywords: MNE, DCF, Capital structure, Corporate income tax, Transfer pricing.
Note: The views expressed in this paper are those of the author and do not necessarily reflect those of the 
	institutions he is affiliated with. Any information presented is of a general nature and does not address 
	individual circumstances of any particular person or entity. The author would like to thank Mina 
	Baliamoune-Lutz , Enrico Colombatto, Elisa Luciano, Giovanna Nicodano, Mario Pagliero, Luigi Benfratello, 
	Andreas Höfer, Andreas Oehler, Thomas Egner, and participants of the I.R.E.F. workshop at Università di 
	Torino on 30 November 2012 for helpful comments and suggestions as well as Keshav Goel for diligent research 
	assistance; the usual disclaimer applies. Financial support by the Institute for Research in Fiscal and 
	Economic Issues (I.R.E.F.) is gratefully acknowledged.
Length: 40 pages 
Creation-Date: 2013-01 
Number: 2013-04 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1304.txt
File-URL: https://eprints.ucm.es/id/eprint/17815/1/1304.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1304