Intangible Assets, Corporate Taxes and the Relocation of Pharmaceutical Establishments: The case of Puerto Rico

Zadia Feliciano () and Meng-Ting Chen

No 29107, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Puerto Rico operated as a tax haven under U.S. Internal Revenue Code (IRC) Section 936. Firms in the pharmaceutical industry accounted for approximately 50% of tax credits awarded and 20% of employment under the program. The U.S. Congress eliminated the tax exemption program in 2006, creating a natural experiment on the elimination of corporate taxation of intangible assets. We use panel data on establishments from the Quarterly Census of Employment and Wages and a difference in difference methodology to measure the impact of the elimination of IRC Section 936 on pharmaceutical and medical devices using establishments with low, medium and high participation in the program as controls. Survival rates of all manufacturing establishments declined after the phaseout and elimination of the tax exemption program but pharmaceutical and medical devices establishments experienced an additional 6.9% decline. Approximately 50% of the 34% decline in pharmaceutical and medical devices establishments in Puerto Rico from 1995 to 2017 can be attributed to the elimination of IRC Section 936. Employment in pharmaceutical and medical devices establishments, which also declined by 34%, decreased at the same rate as that of other industries. Plant closings accounted for most of the decline in their employment.

JEL-codes: F21 F23 H25 O14 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-acc, nep-hea and nep-isf
Note: ITI
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w29107.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29107

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29107

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().