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Transfer Pricing by U.S.-Based Multinational Firms

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  • Andrew Bernard
  • J. Bradford Jensen
  • Peter Schott

Abstract

This paper examines how prices set by multinational firms vary across arm’s-length and related party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm’s-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm’s-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-29.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-29.

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Length: 37 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:cen:wpaper:08-29

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Related research

Keywords: Related party trade; Corporate taxes; Intrafirm trade; Arm’s-length sales; Tariffs; Market structure; Pricing-to-market;

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References

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  16. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
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  22. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2005. "Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods," NBER Working Papers 11404, National Bureau of Economic Research, Inc.
  23. Lall, Sanjaya, 1973. "Transfer-Pricing by Multinational Manufacturing Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 35(3), pages 173-95, August.
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