International trade and tax-motivated transfer pricing

Ansgar F. Quint and Jonas Rudsinske

No 406, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: We study the welfare and distribution effects of corporate taxation and transfer pricing in an asymmetric general oligopolistic equilibrium trade model. Without profit shifting, an increasing profit tax rate shifts welfare towards the taxing country, where it also decreases real wages, whereas real wages rise in the other country. Labor income increases relative to profit income in both countries. Transfer pricing generates an additional benefit from exporting, such that companies want to expand production. Caused by this supply channel, real wages will rise in both countries. Due to shifting tax incomes, a cross-country demand channel relocates consumption from the high- to the low-tax country. In the low-tax country, real profits decrease such that the labor share of income rises.

Keywords: general oligopolistic equilibrium; international trade; labor share; profit shifting; tax evasion; transfer pricing (search for similar items in EconPapers)
JEL-codes: E25 F10 H25 H26 L13 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ind, nep-int and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:406

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