---
title: "Interest Limitation Rules and Business Cycles: Empirical Evidence"
authors:
  - name: "Ropponen, Olli"
    url: "https://www.etla.fi/henkilot/ropponen-olli/"
    sameAs:
      - "https://orcid.org/0000-0002-5175-6284"
      - "https://twitter.com/ropponen_olli"
date_published: "2021-10-13"
series: "ETLA Working Papers"
series_number: "90"
issn:
  - "2323-2420"
  - "2323-2439"
jel_codes:
  - "H25"
  - "H26"
  - "F44"
language: "en"
publisher: "ETLA Economic Research"
pdf_url: "https://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-90.pdf"
keywords:
  - "Business cycles"
  - "Corporate income taxation"
  - "Anti-tax avoidance rules"
  - "Thin-Capitalization Rules (TCRs)"
  - "Earnings Stripping Rules (ESRs)"
identifier: "https://www.etla.fi/julkaisut/id/ETLA-Working-Papers-90"
abstract: "This paper studies the performance of interest limitation rules during business cycles. It employs register data on Finnish affiliates of multinational enterprises (MNEs) to study both thin-capitalization rules (TCRs) and earnings-stripping rules (ESRs). Both types of rules are found to become tighter in economic downturns: TCRs due to higher debt-to-equity ratios and ESRs due to lower company profits. Among equally tight interest limitation rules, TCRs are found to provide less variation and less pro-cyclical outcomes by increasing the company tax burden less than ESRs in an economic downturn. While ESRs increase the tax burden of Finnish companies by 17.5%-19.3% following the 2008 global financial crisis, for TCRs the increase is less than 10%. Among the ESRs, we find that an EBIT rule induces tighter tax treatment in economic downturns than an EBITDA rule. However, the differences between ESRs remain very small."
---

# Interest Limitation Rules and Business Cycles: Empirical Evidence

**Published:** 2021-10-13  
**Categories:** Publikationer, Working Papers  
**URL:** https://www.etla.fi/sv/publikationer/interest-limitation-rules-and-business-cycles-empirical-evidence/

#### Abstract

This paper studies the performance of interest limitation rules during business cycles. It employs register data on Finnish affiliates of multinational enterprises (MNEs) to study both thin-capitalization rules (TCRs) and earnings-stripping rules (ESRs). Both types of rules are found to become tighter in economic downturns: TCRs due to higher debt-to-equity ratios and ESRs due to lower company profits. Among equally tight interest limitation rules, TCRs are found to provide less variation and less pro-cyclical outcomes by increasing the company tax burden less than ESRs in an economic downturn. While ESRs increase the tax burden of Finnish companies by 17.5%-19.3% following the 2008 global financial crisis, for TCRs the increase is less than 10%. Among the ESRs, we find that an EBIT rule induces tighter tax treatment in economic downturns than an EBITDA rule. However, the differences between ESRs remain very small.

---

## Additional Information

**Kirjoittajat:** Ropponen, Olli

65339

**Kansikuva:** https://www.etla.fi/wp-content/uploads/etla-working-papers-90-kansi.jpg

**Lataa Pdf:** https://www.etla.fi/wp-content/uploads/ETLA-Working-Papers-90.pdf

**Key Words:** Business cycles, Corporate income taxation, Anti-tax avoidance rules, Thin-Capitalization Rules (TCRs), Earnings Stripping Rules (ESRs)

**Jel:** H25, H26, F44

**Paivays:** 13.10.2021

**Sivuja:** 29

**Kieli:** en

**Sarja:** ETLA Working Papers

**Sarja Nro:** 90

**Issn:** 2323-2420, 2323-2439 (Pdf)

**Saatavuus:** 2

**Publication Research:** No

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