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

36 Pages Posted: 4 Nov 2016 Last revised: 10 Mar 2021

See all articles by Thomas Schwab

Thomas Schwab

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES)

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Date Written: September 27, 2019

Abstract

We analyze how a reduction of the tax rate on corporate income from intellectual property (IP) in one country, known as a patent box regime, affects corporate R&D activity in other countries. Combining data on patents and multinational corporation networks, we show that the cross-border effect of tax policy changes depends on whether co-location of the IP and the underlying R&D activity is required. Patent boxes without such a requirement increase patent output in other countries. Patent boxes with such a requirement reduce patent output abroad but only when relocation costs for R&D activity are small.

Keywords: Taxation, Cross-border, Innovation, Multinational Firms

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 (September 27, 2019). 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

Thomas Schwab

Ludwig Maximilian University of Munich (LMU) - Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, 80539
Germany

Maximilian Todtenhaupt (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://https://sites.google.com/view/todtenhaupt

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