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Transfer pricing and enforcement policy in oligopolistic markets

  • AMERIGHI, Oscar

We set up a symmetric two-country model with two multinationals competing on the quantities and possibly manipulating their transfer prices. Governments choose both the corporate profit tax rate and the level of enforcement of the \arm's length" principle. We show that stronger enforcement increases equilibrium tax rates. We also find that a larger international ownership of multinationals leads to a \race to the top" in both policies between the two countries, while trade liberalization initially implies a \race to the bottom". But as trade becomes free enough, a further decrease in trade costs raises equilibrium tax rates and enforcement policies.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 2203.

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Handle: RePEc:cor:louvrp:2203
Note: In : S. Brakman and H. Garretsen (eds.), Foreign Direct and the Multinational Enterprise. Cambridge (MA), MIT PRess, 117-153, 2008
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  12. Harry Grubert & Timothy Goodspeed & Deborah L. Swenson, 1993. "Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States," NBER Chapters, in: Studies in International Taxation, pages 237-276 National Bureau of Economic Research, Inc.
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  23. N/A, 2000. "At a Glance," National Institute Economic Review, National Institute of Economic and Social Research, vol. 174(1), pages 2-2, October.
  24. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
  25. Clausing, Kimberly A., 2003. "Tax-motivated transfer pricing and US intrafirm trade prices," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2207-2223, September.
  26. 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.
  27. 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.
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  29. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
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