Cross-Border Effects of R&D Tax Incentives

47 Pages Posted: 20 Nov 2019 Last revised: 3 Nov 2020

See all articles by Bodo Knoll

Bodo Knoll

Ruhr University of Bochum

Nadine Riedel

Ruhr University of Bochum

Thomas Schwab

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

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Johannes Voget

University of Mannheim - Accounting and Taxation

Date Written: October 11, 2019

Abstract

Existing evidence shows that R&D tax incentives boost countries' private sector R&D. As multinational enterprises (MNEs) account for nearly all private sector innovations, it is unclear, however, whether firms engage in genuinely new R&D or whether R&D is reallocated across borders. Drawing on data on unconsolidated R&D activity of MNEs in Europe, we show that R&D tax incentives serve as beggar-thy-neighbor instruments: More generous tax incentives in one country increase MNEs' R&D investments in affiliates located there, while lowering R&D investments in affiliates of the same MNE group located in other countries. Globally, firms hardly respond to changed R\&D tax incentives.

Keywords: R&D tax incentives, R&D investment, multinational firms

JEL Classification: H2, H7

Suggested Citation

Knoll, Bodo and Riedel, Nadine and Schwab, Thomas and Todtenhaupt, Maximilian and Voget, Johannes, Cross-Border Effects of R&D Tax Incentives (October 11, 2019). Available at SSRN: https://ssrn.com/abstract=3484384 or http://dx.doi.org/10.2139/ssrn.3484384

Bodo Knoll

Ruhr University of Bochum

Universitätsstraße 150
Bochum, NRW 44780
Germany

Nadine Riedel

Ruhr University of Bochum

Universitätsstraße 150
Bochum, NRW 44780
Germany

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

Johannes Voget

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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