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The Impact of Transfer Pricing on Intrafirm Trade

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  • Kimberly A. Clausing
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    Abstract

    Using data on the operations of U.S. parent firms and their foreign affiliates between 1982 and 1994, this paper examines the extent to which tax minimizing behavior influences intrafirm trade. The results indicate that taxes have a substantial influence on intrafirm trade flows between U.S. parent firms and their affiliates abroad; the United States has less favorable intrafirm trade balances with low tax countries. This result is anticipated if U.S. sales to affiliates in low tax countries are underpriced and U.S. purchases from affiliates in high tax countries are overpriced. Taxes are also shown to have an influence on intrafirm trade flows between different foreign affiliates of U.S. firms.

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    File URL: http://www.nber.org/papers/w6688.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6688.

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    Date of creation: Aug 1998
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    Publication status: published as Clausing, Kimberly A. "Tax-Motivated Transfer Pricing And US Intrafirm Trade Prices," Journal of Public Economics, 2003, v87(9-10,Sep), 2207-2223.
    Handle: RePEc:nbr:nberwo:6688

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    1. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
    2. Jenkins, Glenn P & Wright, Brian D, 1975. "Taxation of Income of Multinational Corporations: The Case of the United States Petroleum Industry," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 1-11, February.
    3. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
    4. Bernard, J-T. & Weiner, R.J., 1988. "Multinational Corporations, Transfer Prices, And Taxes: Evidence From The U.S. Petroleum Industry," Papers 8822, Laval - Recherche en Energie.
    5. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
    6. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
    7. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
    8. 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.
    9. Subramanian Rangan & Robert Z. Lawrence, 1993. "The Responses of U.S. Firms to Exchange Rate Fluctuations: Piercing the Corporate Veil," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 341-379.
    10. David Harris & Randall Morck & Joel Slemrod & Bernard Yeung, 1991. "Income Shifting in U.S. Multinational Corporations," NBER Working Papers 3924, National Bureau of Economic Research, Inc.
    11. repec:fth:michin:382 is not listed on IDEAS
    12. Lipsey, Robert E & Weiss, Merle Yahr, 1984. "Foreign Production and Exports of Individual Firms," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 304-08, May.
    13. Horst, Thomas, 1971. "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1059-72, Sept.-Oct.
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    Cited by:
    1. Braconier, Henrik & Ekholm, Karolina, 2001. "Foreign Direct Investment in Central and Eastern Europe: Employment Effects in the EU," CEPR Discussion Papers 3052, C.E.P.R. Discussion Papers.
    2. Raymond Fisman & Shang-Jin Wei, 2001. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," NBER Working Papers 8551, National Bureau of Economic Research, Inc.
    3. repec:spo:wpecon:info:hdl:2441/3381 is not listed on IDEAS
    4. Sandrine Levasseur, 2002. "Investissements directs à l’étranger et stratégies des entreprises multinationales," Sciences Po publications info:hdl:2441/3381, Sciences Po.
    5. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.

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