Cross-border effects of R&D tax incentives

authored by
Bodo Knoll, Nadine Riedel, Thomas Schwab, Maximilian Todtenhaupt, Johannes Voget
Abstract

Existing evidence shows that R&D tax incentives boost countries’ private sector R&D. Given the importance of multinational enterprises (MNEs) for private sector innovation, 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 provide evidence that responses are dominated by cross-border relocations: 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 raise their R&D activities when tax incentives become more generous.

External Organisation(s)
Ruhr-Universität Bochum
University of Münster
Munich Society for the Promotion of Economic Research - CESifo GmbH
Ludwig-Maximilians-Universität München (LMU)
Norwegian School of Economics (NHH)
University of Mannheim
Centre for European Economic Research (ZEW)
Type
Article
Journal
Research policy
Volume
50
ISSN
0048-7333
Publication date
11.2021
Publication status
Published
Peer reviewed
Yes
ASJC Scopus subject areas
Strategy and Management, Management Science and Operations Research, Management of Technology and Innovation
Sustainable Development Goals
SDG 9 - Industry, Innovation, and Infrastructure
Electronic version(s)
https://doi.org/10.1016/j.respol.2021.104326 (Access: Open)