Taxes and the Global Spillovers of AI Investments

67 Pages Posted: 25 Apr 2025

See all articles by Emilia Gschossmann

Emilia Gschossmann

University of Mannheim

Marcel Olbert

London Business School; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research

Date Written: March 28, 2025

Abstract

Artificial Intelligence (AI) is transforming businesses and the technological frontier, yet its cross-border spillovers remain understudied. Using a novel panel dataset, we find that AI investment strongly propagates internationally in the form of growth in foreign subsidiaries' assets, employment, and revenues. We construct a measure of European country-industry exposure to U.S. firms' AI investments and document significant spillovers of U.S.-originating AI investment into European industries. However, these effects vary with local tax policies: European countries with attractive R&D tax incentives experience faster, larger AI-driven growth, while low corporate tax rates further amplify revenue spillovers. To test the mechanisms behind these results, we exploit variation within U.S. firms across their foreign subsidiaries. Spillovers occur because U.S. firms not only expand capital inputs and output, but also increase their labor productivity, R&D activities, and market presence, particularly in foreign markets with attractive corporate tax regimes, following AI adoption. Our findings highlight the role of fiscal policy in shaping AI diffusion and offer new insights into how digital-era investments influence global economic growth.

Keywords: AI investment, intangible assets, growth, tax policy, tax competition, real effects of taxation

Suggested Citation

Gschossmann, Emilia and Olbert, Marcel, Taxes and the Global Spillovers of AI Investments (March 28, 2025). Available at SSRN: https://ssrn.com/abstract=5196844 or http://dx.doi.org/10.2139/ssrn.5196844

Emilia Gschossmann

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

Marcel Olbert (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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

United States

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