There is ample evidence that internal capital markets incur efficiency costs for multinational enterprises (MNEs). This paper analyzes whether tax avoidance behavior interacts with the costs of running an internal capital market and how policies of competing governments respond to it. We show...

There is ample evidence that internal capital markets incur efficiency costs for multinational enterprises (MNEs). This paper analyzes whether tax avoidance behavior interacts with the costs of running an internal capital market and how policies of competing governments respond to it. We show...

This paper derives the optimal financial contract when a borrowing entrepreneur can evade taxes in a model of costly state verification. In contrast to previous literature on costly state verification and financial contracting, we find that standard debt contracts are not optimal when tax...

Using pairs of similar US and European firms listed on the S&P500 or StoxxEurope600, we examine effective tax differentials between US multinational corporations (MNCs) and their European peers. We show that statutory tax rates and profit shifting opportunities are important determinants of...