Tax and Non-tax Government Policies and the Location and Relocation of Patents

46 Pages Posted: 18 Jun 2023

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Cinthia Valle Ruiz

Catholic University of Lille - IESEG School of Management

Date Written: June 16, 2023

Abstract

In this study, we shed light on the combined effect of corporate income tax and other government policies on multinational corporations’ (MNCs) strategic location and relocation of intellectual property. Using granular affiliate-level data for worldwide MNCs, we show that the location of granted and acquired patents generally responds negatively to corporate income tax rates and stricter employment protection laws. However, stricter employment protection laws mitigate the attractiveness of low corporate income tax rates in MNCs’ patent location decisions. Additional tests suggest that larger MNCs respond more than smaller MNCs to lenient employment protection laws and personal tax benefits aimed at highly skilled workers, while smaller MNCs respond more than large MNCs to corporate income tax incentives when choosing where to locate granted or acquired patents. Further, results vary predictably with migrant labor mobility and over time. Our study contributes to the tax policy debate over cross-border competition for innovative activities by examining the effect of both corporate income tax and other policies on firm’s IP location and relocation decisions.

Keywords: Multinational corporations, patent’s location choices, tax incentives, employment protection laws, tax benefits for highly skilled workers.

JEL Classification: H25, H26, M50.

Suggested Citation

De Simone, Lisa and Klassen, Kenneth and Valle Ruiz, Cinthia, Tax and Non-tax Government Policies and the Location and Relocation of Patents (June 16, 2023). Available at SSRN: https://ssrn.com/abstract=4481535 or http://dx.doi.org/10.2139/ssrn.4481535

Lisa De Simone

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

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

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Cinthia Valle Ruiz (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

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