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Transfer Pricing and Enforcement Policy in Oligopolistic Markets
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Transfer Pricing and Enforcement Policy in Oligopolistic Markets

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  • O. Amerighi

Abstract

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.

Suggested Citation

  • O. Amerighi, 2006. "Transfer Pricing and Enforcement Policy in Oligopolistic Markets," Working Papers 567, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:567
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    Cited by:

    1. Alex Augusto Timm Rathke, 2015. "Note on tax enforcement and transfer pricing manipulation," Papers 1506.08743, arXiv.org.
    2. Rathke, Alex A. T., 2015. "Transfer pricing manipulation, tax penalty cost and the impact of foreign profit taxation," EconStor Conference Papers 129075, ZBW - Leibniz Information Centre for Economics.
    3. Gerlinde Verbist & Francesco Figari, 2014. "The Redistributive Effect and Progressivity of Taxes Revisited: An International Comparison across the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 405-429, September.
    4. Amerighi, Oscar & Peralta, Susana, 2010. "The proximity-concentration trade-off with profit shifting," Journal of Urban Economics, Elsevier, vol. 68(1), pages 90-101, July.
    5. Oscar Amerighi & Giuseppe De Feo, 2014. "Competition for FDI and Profit Shifting: On the Effects of Subsidies and Tax Breaks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 374-404, September.
    6. Tomáš Buus & Jaroslav Brada, 2010. "Can Profit-shifting be Resolved by Penalization?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2010(3), pages 56-74.
    7. Alex Augusto Timm Rathke, 2015. "Transfer pricing manipulation, tax penalty cost and the impact of foreign profit taxation," Papers 1508.03853, arXiv.org.
    8. Rathke, Alex, 2015. "Transfer pricing manipulation, tax penalty cost and the impact of foreign profit taxation," MPRA Paper 66133, University Library of Munich, Germany.
    9. Rathke, Alex Augusto Timm, 2015. "Note on tax enforcement and transfer pricing manipulation," MPRA Paper 65337, University Library of Munich, Germany.

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    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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