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  3. American Economic Journal: Economic Policy
  4. August 2016
  5. Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships

Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships

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Abstract

Using a firm-level dataset of Danish exports between 1999-2006, we find robust evidence for profit shifting by multinational corporations. Our triple difference estimations exploit the response of export unit values to acquisitions of foreign affiliates and to changes in statutory corporate tax rates. This identification strategy corrects for a downward bias resulting from firms adjusting arm's length prices to obscure transfer price manipulations. We find that Danish multinationals reduce the unit values of their exports to low tax countries between 5.7 to 9.1 percent. This difference corresponds to a tax revenue loss of 3.24 percent of Danish multinationals' tax returns.

Citation

Cristea, Anca D., and Daniel X. Nguyen. 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships." American Economic Journal: Economic Policy, 8 (3): 170-202. DOI: 10.1257/pol.20130407

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D22 Firm Behavior: Empirical Analysis
  • F14 Empirical Studies of Trade
  • F23 Multinational Firms; International Business
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • H32 Fiscal Policies and Behavior of Economic Agents: Firm
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