We present empirical evidence suggesting that the effect of the host country corporate tax rate on the debt ratio of multinational affiliates in developing economies is positive and larger than the same effect for affiliates in developed economies.

An increase in the taxation of foreign affiliates reduces domestic investment, as has recently been empirically shown in Becker and Riedel (2012). This paper investigates the implication of this finding for tax competition. It is shown that an increase in the number of multinational firms (in...