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The Global Effects of R&D Tax Incentives: Evidence from Micro-Data

Author

Listed:
  • Knoll, Bodo
  • Baumann, Martina
  • Riedel, Nadine
Abstract
Recent years have seen an unprecedented increase in the provision of R&D tax incentives. A growing empirical literature suggests that R&D tax incentives are instrumental in raising domestic R&D activity. In policy debates this fi nding is often interpreted to lend support to the notion that R&D tax incentives increase national welfare by internalizing knowledge spillovers to other agents in the economy and raising ineffi ciently low R&D levels. Our paper stresses that much of the observed increase in R&D activities in response to R&D tax incentives is in fact related to R&D activities that are attracted from abroad. Using unique panel data on R&D activities of European multinational fi rms, we test for a potential impact of both, R&D tax incentives in the affi liate's host country and R&D tax incentives at other locations of the multinational group. In line with theoretical predictions, we fi nd a positive impact of domestic R&D subsidies and a negative one for foreign subsidies provided at other group locations. Quantitatively, the fi ndings suggest that around 80% of the observed increase in R&D activities is related to relocations of R&D across country borders.

Suggested Citation

  • Knoll, Bodo & Baumann, Martina & Riedel, Nadine, 2014. "The Global Effects of R&D Tax Incentives: Evidence from Micro-Data," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100347, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100347
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    References listed on IDEAS

    as
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    Cited by:

    1. Daniel Gama e Colombo, 2016. "Impact Assessment of Tax Incentives to Foster Industrial Innovation in Brazil: The Case of Law 11,196/05," Working Papers, Department of Economics 2016_30, University of São Paulo (FEA-USP).
    2. repec:ces:ifodic:v:12:y:2015:i:4:p:19149984 is not listed on IDEAS
    3. Comin, Diego & Licht, Georg & Pellens, Maikel & Schubert, Torben, 2018. "Do Companies Benefit from Public Research Organizations? The Impact of the Fraunhofer Society in Germany," Papers in Innovation Studies 2018/7, Lund University, CIRCLE - Centre for Innovation Research.
    4. Shafik Hebous & Alfons J. Weichenrieder, 2015. "What Do We Know about the Tax Planning of German-based Multinational Firms?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 15-21, 01.
    5. Egger, Peter & Loumeau, Nicole, 2018. "The Economic Geography of Innovation," CEPR Discussion Papers 13338, C.E.P.R. Discussion Papers.
    6. Raphael Zingg & Erasmus Elsner, 2020. "Protection heterogeneity in a harmonized European patent system," European Journal of Law and Economics, Springer, vol. 50(1), pages 87-131, August.
    7. Shafik Hebous & Alfons J. Weichenrieder & Alfons Weichenrieder, 2015. "What Do We Know about the Tax Planning of German-based Multinational Firms?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(04), pages 15-21, January.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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