Transfer Pricing of Multinational Corporations and Macroeconomic Volatility: Evidence from the U.S

Patrick Ofei*, Abieku Neizer-Ashun, George Owusu-Antwi and Evans Darnor Maka
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Patrick Ofei*: Zenith University College, Ghana
Abieku Neizer-Ashun: Hampton University, Virginia
George Owusu-Antwi: Higher Colleges of Technology, UAE
Evans Darnor Maka: Graduate School of Public Policy, University of Tokyo, Japan

International Journal of Economics and Financial Research, 2018, vol. 4, issue 8, 266-273

Abstract: This paper investigates the extent of macroeconomic volatility caused by the transfer pricing behavior of multinational corporations. The study examined two possible transmission channels through which transfer pricing causes macroeconomic volatility, namely, terms of trade and budget policy channels. Using the EGARCH model with annual data on selected variables from 1980 to 2017, the paper found evidence of macroeconomic volatility caused by transfer pricing. The size of the shock from transfer pricing is high and statistically significant in the terms of trade and budget policy channels. Negative shock from multinational corporations shifting taxable income between high and low tax regimes had a larger effect than a positive shock on the country’s budget policy. The volatility caused by transfer pricing was short-lived in the terms of trade channel. However, in the budget policy channel, past volatility of transfer pricing persisted for a longer period to explain current volatility.

Keywords: Transfer pricing; Macroeconomic volatility; Principal component analysis; Terms of trade; Budget policy. (search for similar items in EconPapers)
Date: 2018
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