Spillover from the haven: Cross-border externalities of patent box regimes within multinational firms

Thomas Schwab and Maximilian Todtenhaupt

No 16-073, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper analyzes externalities of patent box regimes in Europe. Tax reductions in foreign affiliates of a firm that also provide a profit shifting opportunity reduce the user cost of capital and thereby increase domestic investment. We test this mechanism for the case of research activity. By combining information on patents, firm ownership data and specific characteristics of patent box regimes, we show that patent box regimes without nexus requirements for tax-efficient reallocation of patent profits induce positive spillovers within multinational groups. The implementation of a patent box in a country one of the foreign affiliates of a firm resides, increases domestic research activity by about 74 percent or 2 percent per implied tax rate differential. Furthermore, our findings suggest that patent boxes generate negative spillovers on average patent quality. This has important implications for international tax policy and the evaluation of patent box regimes.

Keywords: patent box; spillover; corporate taxation; innovation (search for similar items in EconPapers)
JEL-codes: F23 H25 O31 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-cse, nep-ino, nep-ipr and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Spillover from the haven: Cross-border externalities of patent box regimes within multinational firms (2017)
Working Paper: Spillover from the Haven: Cross-border Externalities of Patent Box Regimes within Multinational Firms (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:16073

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