Taxation and incentives to innovate: a principal-agent approach

Diego d'Andria

No 2014-028, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: A principal-agent multitasking model is used to explore the effects of different tax schemes on innovation in a pure knowledge economy. Corporate taxes and labor income taxes can affect both the firm owner's and the employee's incentives to commit to innovative tasks, when the former compensates the latter (a manager, technical or R&D employee) by means of variable pay tied to measures of the company's success. Results point to a complementary role between "patent box" tax incentives and reductions in the tax rate levied on profit sharing schemes. This complementarity holds, albeit with different relative importance for the two tax incentives, also with non-deductible labor costs, with a stochastic innovation value coupled with a risk-averse agent, and with multiple principals competing for talented agents.

Keywords: tax incentives for R&D; patent box; principal-agent models; multitasking models; profit sharing schemes; incentives to innovate (search for similar items in EconPapers)
JEL-codes: H2 J33 O31 (search for similar items in EconPapers)
Date: 2014-11-11
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-ino, nep-pbe and nep-pub
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Journal Article: Taxation and Incentives to Innovate: A Principal-Agent Approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2014-028

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