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The Optimal Design of Transfer Pricing Rules: A Non-Cooperative Analysis

Author

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  • Raimondos-Moller, P.
  • Scharf, K.A.

Abstract

The literature on the regulation of multinationals' transfer prices has not considered the possibility that governments choose their transfer pricing rules in a non-cooperative fashion. The present paper fills this gap and shows that a non-cooperative equilibrium is characterized by above-optimal levels of effective taxation in comparison with a cooperative solution. We also derive conditions under which harmonization of transfer pricing rules lead to a Pareto improvement, and show that harmonization according to the 'arm's length' principle is not Pareto improving relative to the non-cooperative outcome.

Suggested Citation

  • Raimondos-Moller, P. & Scharf, K.A., 1997. "The Optimal Design of Transfer Pricing Rules: A Non-Cooperative Analysis," The Warwick Economics Research Paper Series (TWERPS) 502, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:502
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1995-1998/twerp502.pdf
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    Cited by:

    1. Schjelderup, Guttorm & Ulltveit-Moe, Karen Helene & Kind, Hans Jarle, 2001. "Corporate Taxation, Multinational Enterprise and Economic Integration," CEPR Discussion Papers 2753, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    PRICING ; TAXATION;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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