This study investigates the economic consequences and the effectiveness of the interest barrier rule of article 4 of the EU Anti-Tax Avoidance Directive on an EU-wide basis. The analyses performed are based on a sample of 492,977 firms from 21 EU Member States. The economic consequences of the interest barrier rule are fairly small. Without an allowance and an exemption for stand-alone firms, the findings indicate that between 13.97% and 17.29% of all EU firms will be affected by the interest barrier. This percentage decreases substantially, to between 0.51% and 0.81%, if an allowance of EUR 3 million is granted. When evaluating the effectiveness of the interest barrier, the results show that the interest barrier is effective in aligning interest deductibility with real economic activity in the vast majority of EU Member States. Moreover, it is more effective than a thin capitalization rule with a safe harbour debt-to-equity ratio. The results obtained provide valuable insights for lawmakers as to how to choose effectively among the legislative options provided by article 4 of the EU Anti-Tax Avoidance Directive.