The Effect of Innovation Box Regimes on Investment and Employment Activity

53 Pages Posted: 11 Jun 2021 Last revised: 23 Aug 2022

See all articles by Shannon Chen

Shannon Chen

University of Arizona - Department of Accounting

Lisa De Simone

University of Texas at Austin

Rebecca Lester

Stanford Graduate School of Business

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: August 3, 2022

Abstract

We study whether innovation box tax incentives, which reduce tax rates on innovation-related income, are associated with increased fixed asset investment and employment. Using a stacked cohort difference-in-differences design on an entropy-balanced sample of European multinationals, we find innovation box regimes are associated with higher levels of capital expenditures, relative to non-innovation box jurisdictions. We do not find discernable effects on total employment or total compensation. However, the data suggest that companies in innovation box countries have a more highly-compensated workforce following innovation box implementation, particularly among patent-owning observations in countries with more restrictive innovation box regimes and greater tax benefits. Our study contributes to the literature on, and policy evaluation of, innovation box regimes by examining the extent to which these incentives result in tangible investment and employment and by identifying how different characteristics of innovation box regimes impact these outcomes.

Keywords: innovation box, investment, employment

JEL Classification: H25, M40, M48, G38, F23

Suggested Citation

Chen, Shannon and De Simone, Lisa and Lester, Rebecca and Hanlon, Michelle, The Effect of Innovation Box Regimes on Investment and Employment Activity (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=3864574 or http://dx.doi.org/10.2139/ssrn.3864574

Shannon Chen

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

Lisa De Simone (Contact Author)

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

HOME PAGE: http://www.lisa-desimone.com

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-668
Cambridge, MA 02142
United States
617-253-9849 (Phone)

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