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The Impact of Transfer Pricing on Intrafirm Trade

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  • Kimberly A. Clausing

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.

Suggested Citation

  • Kimberly A. Clausing, 1998. "The Impact of Transfer Pricing on Intrafirm Trade," NBER Working Papers 6688, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6688
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    1. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
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    9. repec:bla:joares:v:36:y:1998:i:2:p:209-229 is not listed on IDEAS
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    11. 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.
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    Cited by:

    1. Mihir A. Desai & James R. Hines, Jr., 2001. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Chapters,in: Tax Policy and the Economy, Volume 15, pages 41-94 National Bureau of Economic Research, Inc.
    2. 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.
    3. Sandrine Levasseur, 2002. "Investissements directs à l'étranger et stratégies des entreprises multinationales," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 103-152.
    4. repec:spo:wpecon:info:hdl:2441/3381 is not listed on IDEAS
    5. Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April.
    6. Becker, Johannes & Davies, Ronald B. & Jakobs, Gitte, 2017. "The economics of advance pricing agreements," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 255-268.
    7. 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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