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Export Pricing of Foreign Firms in Hungary: Estimations for 1992-96

Author

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  • Halpern, László
  • Koren, Miklós

Abstract

The Paper investigates how foreign-owned and domestic firms in Hungary set their export prices. Using a unique dataset with firm and product-level data on trade flows, we find that foreign firms charge substantially lower export prices than domestic firms. This finding is robust after controlling for relevant firm characteristics, indicating that the pricing behaviour of foreign firms is different. One explanation is that multinational firms engage in transfer pricing to minimize tax burden. We provide evidence that tax incentives explain a large portion of the price gap; the export prices of tax-paying foreign firms are 15 to 35% lower than arm’s length prices.

Suggested Citation

  • Halpern, László & Koren, Miklós, 2003. "Export Pricing of Foreign Firms in Hungary: Estimations for 1992-96," CEPR Discussion Papers 3833, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3833
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    More about this item

    Keywords

    Transfer pricing; Foreign firms; export pricing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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