CONTRIBUTED PAPER
Firm responses to an interest barrier: empirical evidence
Jarkko Harju,
Ilpo Kauppinen,
Olli Ropponen,
Jarkko Harju
University of Tampere
Finnish Centre of Excellence in Tax Systems Research (FIT)
VATT Institute for Economic Research
CESifo
Search for more papers by this authorCorresponding Author
Ilpo Kauppinen
Finnish Centre of Excellence in Tax Systems Research (FIT)
VATT Institute for Economic Research
CESifo
Correspondence
Ilpo Kauppinen, VATT Institute for Economic Research, Arkadiankatu 7, PL 1279, 00101 Helsinki, Finland.
Email: [email protected]
Search for more papers by this authorJarkko Harju,
Ilpo Kauppinen,
Olli Ropponen,
Jarkko Harju
University of Tampere
Finnish Centre of Excellence in Tax Systems Research (FIT)
VATT Institute for Economic Research
CESifo
Search for more papers by this authorCorresponding Author
Ilpo Kauppinen
Finnish Centre of Excellence in Tax Systems Research (FIT)
VATT Institute for Economic Research
CESifo
Correspondence
Ilpo Kauppinen, VATT Institute for Economic Research, Arkadiankatu 7, PL 1279, 00101 Helsinki, Finland.
Email: [email protected]
Search for more papers by this authorFirst published: 06 February 2025
Submitted: March 2024
Abstract
In this paper, we study the effects of an interest barrier (IB) that was introduced in Finland in 2014 to restrict the profit-shifting opportunities of multinational enterprises (MNEs). We employ data from the Orbis database on Finnish, Swedish and Danish MNEs and a difference-in-differences methodology, where Swedish and Danish MNEs serve as a control group. We examine the effects of the IB on financial expenses, debt levels and overall economic activity of firms. We find that Finnish MNEs responded to the IB by decreasing their financial expenses. We also find that the most affected firms decreased their debt levels due to the reform. Our results also suggest that the financial expense response is followed by a change in the use of transfer pricing as a method to shift profits between tax jurisdictions. We do not find evidence of total output changes among treated firms, which suggests that the IB did not affect the real activity of the treated MNEs.
CONFLICT OF INTEREST STATEMENT
The authors have no potential competing interest regarding the subject matter of this study.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the findings of this study are extracted from Orbis database. Restrictions apply to the availability of these data, which were used under license for the current study and so are not publicly available.
Supporting Information
| Filename | Description |
|---|---|
| fisc12401-sup-0001-OnlineAppendix.pdf153.6 KB | Table A.1. Econometric results for parents and subsidiaries. Table A.2. Econometric results for treatment intensity: other subsidiaries of treated MNEs. |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
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