This paper investigates the impact of the enactment of the anti-thin capitalization rules on capital structure after the enactment of the anti-thin capitalization rules in Taiwan. According to the theoretical derivation, companies with lower shareholder imputed tax credits ratio tend to have greater debt-to-equity ratio, while companies with higher surtax on undistributed earnings ratio tend to have higher debt-to-equity ratio. This finding is consistent with the hypotheses of this study. However, the relationships between interest-bearing liability rate, marginal income tax rate and debt-to-equity ratios are uncertain.Using 2006-2012 sample data for the empirical study, this paper finds that enterprise's total debt-to-equity ratios significantly decreases after the enactment of the anti-thin capitalization rules, and provisions preventing capital weakening have policy effectiveness. The shareholder imputed tax credits ratio and total debt-to-equity ratio are negatively correlated, while interest-bearing liability rate, marginal income tax rate, and surtax on undistributed earnings ratio, are positively correlated with total debt-to-equity ratio. This finding supports the hypotheses of this study. However, marginal income tax rate is lack of significance. Regardless of the enactment of the anti-thin capitalization rules, pledge ratios, investment growth opportunities, firm size and ownership of director and supervisor ratios are positively correlated with total debt-to-equity ratio; non-debt tax shields, R&D ratio and profitability are negatively correlated with total debt-to-equity ratio, which are also consistent with the expected results of this paper.

This paper follows an approach adopted by Cremer, Marchand and Pestieau (1997) to analyze efficiency in the provision of heterogeneous local public facilities. Even when spillovers exist, under certain conditions the local government could still reach the optimum provision of the local public good, otherwise there is under-provision. Secondly, relaxing the non-excludability assumption, provision efficiency could be achieved if the local governments collect the service fees based on the neighboring community user's net marginal willingness to pay. If not, the service fee mechanism would not always be able to eliminate the preexisting allocation inefficiency and could sometimes lead to increased inefficiency due to overprovision of the public good. JEL classification codes: H41, H7, R5