The Effect of Innovation Box Regimes on Income Shifting and Real Activity

Shannon Chen, Lisa De Simone, Michelle Hanlon and Rebecca Lester
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Shannon Chen: University of TX
Lisa De Simone: Stanford University
Michelle Hanlon: MIT
Rebecca Lester: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We study whether innovation box tax incentives, which reduce tax rates on innovation-related income, are associated with tax-motivated income shifting, investment, and employment in the countries that implement these regimes. Using a sample of European and U.S. multinationals' subsidiaries operating in Europe and three income shifting models, we find some evidence that firms shift less income out of relatively high statutory tax rate countries following the implementation of an innovation box. We also find that innovation box regimes successfully increase employment but do not result in significant increases in fixed asset investment. Our study contributes to the literature by evaluating multiple income shifting models and informing the ongoing policy debate regarding the economic effects of innovation box regimes.

Date: 2016-07
New Economics Papers: this item is included in nep-ino, nep-tid and nep-ure
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