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This paper analyzes the transfer pricing of multinational firms. Intrafirm prices may systematically deviate from arm’s-length prices for two motives: pricing to market and tax avoidance. Using French firm-level data on arm’s-length and intrafirm export prices, we find that the sensitivity of intrafirm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most important, we find no evidence of tax avoidance if we disregard tax haven destinations. Tax avoidance through transfer pricing is economically sizable. The bulk of this loss is driven by the exports of 450 firms to ten tax havens.

We characterize the relationship between the distributions of two variables linked by a structural model. We then show that, in models of heterogeneous firms in monopolistic competition, this relationship implies a new demand function that we call “CREMR” (Constant Revenue Elasticity of Marginal Revenue). This demand function is the only one that is consistent with productivity and sales distributions having the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and it is necessary and sufficient for Gibrat’s Law to hold over time. Among the applications we consider, we use our methodology to characterize misallocation across firms; we derive the distribution of markups implied by any assumptions on demand and productivity; and we show empirically that CREMR-based markup distributions provide an excellent parsimonious fit to Indian firm-level data, which in turn allows us to calculate the proportion of firms that are of suboptimal size in the market equilibrium.

We propose a model of monopolistic competition with additive preferences and variable marginal costs. Using the concept of \"relative love for variety,\" we provide a full characterization of the free-entry equilibrium. When the relative love for variety increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The constant elasticity of substitution is the only case in which all competitive effects are washed out. We also show that our results hold true when the economy involves several sectors, firms are heterogeneous, and preferences are given by the quadratic utility and the translog.

Which countries should aim for international regulatory cooperation? We develop an imperfectly-competitive trade model where countries differ in technology and regulatory preferences over local consumption externalities. Countries set different product standards, but tailoring products to each market is costly for firms. Trade occurs when Ricardian gains outweigh countries' asymmetric regulations. Regulatory cooperation is more beneficial for countries with intermediate differences in regulatory preferences, particularly when tariffs are already low. Mutual regulatory concessions allow countries with strong comparative advantages in different externality-generating goods to implement deeper agreements. With highly-dispersed regulatory preferences, international cooperation is characterized by regulatory blocs.

This paper proposes an estimation of an augmented Tornqvist price-index - fea- turing demand shifters - which is exact for homothetic translog preferences. Contrary to previous work based on a constant elasticity of substitution across varieties, this demand system allows for changes in markups even when the number of products is large. We then propose a structural decomposition of this index in terms of changes in markups, productivity, variety and demand shocks. We illustrate our approach using sample data from ACNielsens Homescan Panel. For instance, our results are consistent with competition effects where a decrease in per-product demand trans- lates into lower markups.

We develop a quantitative general equilibrium model of multinational activity embedding corporate taxation and profit shifting. In addition to trade and investment frictions, our model shows that profit-shifting frictions shape the geography of multinational production. Key to our model is the distinction between the corporate tax elasticity of real activity and profit shifting. The quantification of our model requires estimates of shifted profits flows. We provide a new, model-consistent methodology to calibrate bilateral profit-shifting frictions based on accounting identities. We simulate various tax reforms aimed at curbing tax-dodging practices of multinationals and their impact on a range of outcomes, including tax revenues and production. Our results show that the effects of the international relocation of firms across countries are of comparable magnitude as the direct gains in taxable income.

This paper examines how the degree of stickiness in business relationships influences the real impact of aggregate uncertainty. We first develop a novel index of relationship stickiness (RS) for more than 5,000 HS6 products based on the duration of firm-to-firm trade. The RS measure is derived from a stylized search model in which a higher degree of stickiness implies a lower probability of switching and longer firm-to-firm trade relationships, conditional on match quality. Relationship stickiness shapes the dynamics of firm-to-firm relationships in response to uncertainty shocks. Uncertainty shocks induce a significant and larger decrease in the rate at which new firm-to-firm relationships are formed in high-RS product categories. The relationship between uncertainty and separation rates also varies along the distribution of RS indices, the probability of a trade relationship ending being significantly reduced in sticky-product markets in uncertain times. These results provide evidence that trade of sticky products is characterized by wait-and-see behaviors during uncertainty episodes.

This paper investigates the influence of corporate tax avoidance (CTA) on industry concentration in the U.S. since the mid-1990s. A simple model shows CTA increases concentration if (i) CTA gives a competitive advantage to avoiding firms, and (ii) CTA of large relative to small firms increases. We find a positive and causal impact of CTA on firm-level sales using three alternative identification strategies. We then show CTA increases more among the largest firms in most industries, which reinforces their dominant position. In key industries, the differences in tax aggressiveness between large and small firms explain 10% to 30% of the increase in concentration over the last 25 years. CTA-induced changes in the CR4 index influence industrial real output to an extent that is relevant at the macroeconomic scale.

This paper investigates the influence of corporate tax avoidance (CTA) on industry concentration in the U.S. since the mid-1990s. A simple model shows CTA increases concentration if (i) CTA gives a competitive advantage to avoiding firms, and (ii) CTA of large relative to small firms increases. We find a positive and causal impact of CTA on firm-level sales using three alternative identification strategies. We then show CTA increases more among the largest firms in most industries, which reinforces their dominant position. In key industries, the differences in tax aggressiveness between large and small firms explain 10% to 30% of the increase in concentration over the last 25 years. CTA-induced changes in the CR4 index influence industrial real output to an extent that is relevant at the macroeconomic scale.