Working Paper: NBER ID: w12493
Authors: Andrew B. Bernard; J. Bradford Jensen; Peter K. Schott
Abstract: This paper examines how prices set by multinational firms vary across arm's-length and related-party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm's-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm's-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.
Keywords: transfer pricing; multinational firms; arms-length pricing; related-party transactions; international trade
JEL Codes: F14; F23; H25; H26; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower corporate tax rates (K34) | larger price wedge (D49) |
| higher import tariffs (F14) | larger price wedge (D49) |
| larger firm size (L25) | larger price wedge (D49) |
| larger export share (F10) | larger price wedge (D49) |
| 10% appreciation of the dollar (F31) | 2% reduction in price wedge (D41) |
| prices for arms-length customers (L97) | prices for related-party transactions (L14) |
| product differentiation (L15) | price wedge (D41) |