Thinking Outside the Box: The Cross-border Effect of Tax Cuts on R&D

64 Pages Posted: 4 Nov 2016 Last revised: 8 Mar 2018

Thomas Schwab

University of Mannheim; Centre for European Economic Research (ZEW); WU Vienna

Maximilian Todtenhaupt

University of Mannheim; Centre for European Economic Research (ZEW) - Corporate Taxation and Public Finance Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2018

Abstract

Abstract We analyze the cross-border effect of tax cuts on R&D activity in the context of profit shifting. A tax cut in one location of a multinational enterprise reduces the user cost of capital for the whole group if profit shifting is possible and exerts a positive cross-border effect on R&D output. Using micro-level data, we find an increase of patent output of 15% upon the implementation of a foreign tax cut for firms with cross-border links. In addition, we find that foreign tax cuts prohibiting profit shifting generate a negative cross-border effect on average patent quality.

Keywords: cross-border, taxation, innovation

JEL Classification: F23, H25, O31

Suggested Citation

Schwab, Thomas and Todtenhaupt, Maximilian, Thinking Outside the Box: The Cross-border Effect of Tax Cuts on R&D (March 1, 2018). WU International Taxation Research Paper Series No. 2016-07; ZEW - Centre for European Economic Research Discussion Paper No. 16-073. Available at SSRN: https://ssrn.com/abstract=2864304 or http://dx.doi.org/10.2139/ssrn.2864304

Centre for European Economic Research (ZEW) ( email )

Mannheim
Germany
+49 621 1235 380 (Phone)

WU Vienna

Welthandelsplatz 1
Wien, 1020
Austria

Maximilian Todtenhaupt (Contact Author)

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Centre for European Economic Research (ZEW) - Corporate Taxation and Public Finance Research ( email )

United States

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