Transfer-pricing and Measured Productivity of Multinational Firms

Giorgia Maffini (Oxford University Centre for Business Taxation)
Socrates Mokkas (Oxford University Centre for Business Taxation)

This paper examines the differences in total factor productivity (TFP) between multinationals and domestic firms before and after tax rate changes to investigate whether the host country corporate tax rate has a significant influence on the measured TFP advantage of multinational companies. Using a difference-in-differences approach on a sample of approximately 16,000 European firms (1998-2004), we find that a 10 percentage points cut in the statutory corporate tax rate would increase multinationals' measured TFP by about 10% relative to domestic firms, consistent with profit-shifting by multinationals. At the sample mean, this would imply a 44% increase in the TFP advantage of multinationals.

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