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Do earnings stripping rules hamper investment? Evidence from CIT reforms in European countries

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  • Leszczyłowska, Anna
  • Meier, Jan-Hendrik

Abstract

Earnings stripping rules (ESRs) aim at curbing companies’ tax-motivated use of debt. Based on heterogeneous regulations introduced in seven European countries, we find that these rules adversely affect corporate investment. The adverse investment effect is observed when ESRs restrict total debt as well as when they apply to related-party debt. However, the magnitude of this effect varies across countries and types of investment — in tangible and intangible assets.

Suggested Citation

  • Leszczyłowska, Anna & Meier, Jan-Hendrik, 2021. "Do earnings stripping rules hamper investment? Evidence from CIT reforms in European countries," Economics Letters, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000203
    DOI: 10.1016/j.econlet.2021.109743
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    References listed on IDEAS

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    Cited by:

    1. Ropponen, Olli, 2021. "Interest Limitation Rules and Business Cycles: Empirical Evidence," ETLA Working Papers 90, The Research Institute of the Finnish Economy.

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    More about this item

    Keywords

    Corporate income tax; Earnings stripping rules; Interest limitation rules; Thin capitalization; Investment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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