 Corporate profit tax, managerial delegation and multinational firm's transfer pricingDi Wu, Leonard F. S. Wang and Jie Ma Metroeconomica, 2024, vol. 75, issue 3, 326-338 Abstract: This paper analyzes the transfer pricing decision of the multinational firm. There are differences in profit tax rates between home‐country and host‐country. The multinational firm determines the transfer price to its overseas affiliate and delegates the responsibility of deciding on the final sales to its affiliate manager. We find that: (1) The multinational firm will set a higher transfer price if its affiliate hires a manager. If the host‐country firm also hires a manager, the managerial delegation may lead to an asymmetry “prisoner's dilemma”. (2) When home‐country's tax rate is higher than that in the host‐country, multinational firm tends to set a lower transfer price relative to the marginal production cost. (3) When host‐country's tax rate is higher than that in the home‐country, an increase in the host‐country corporate tax rate decreases multinational firm's profit and the consumer surplus, while its impact on the host‐country firm's profit is non‐monotone; an increase in the home‐country tax rate decreases host‐country firm's profit, increases consumer surplus, but has a non‐monotone impact on multinational firm's profit. Date: 2024 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:metroe:v:75:y:2024:i:3:p:326-338 Ordering information: This journal article can be ordered from Access Statistics for this article Metroeconomica is currently edited by Heinz D. Kurz and Neri Salvadori More articles in Metroeconomica from Wiley Blackwell |
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