The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis

Giovanni Cerulli, Bianca Potì () and Raffaele Spallone ()
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Bianca Potì: CNR-IRCrES, National Research Council of Italy, Institute for Research on Sustainable Economic Growth
Raffaele Spallone: CNR-ISSiRFA, National Research Council of Italy, Institute for the Study of Regionalism, Federalism and Self-Government

Economia Politica: Journal of Analytical and Institutional Economics, 2018, vol. 35, issue 2, No 16, 649-675

Abstract: Abstract In this article, we aim at a better understanding and measurement of the importance of R&D tax incentive as a driver of R&D investments of MNEs. Using data both at sectoral and country level, we develop two counterfactual exercises to provide evidence on the effects of R&D tax relief on MNEs’ inward R&D business investments (Inward BERD): a matching and a continuous-treatment econometric model. In this counterfactual perspective, we compare Countries with a tax incentive scheme for R&D and countries that do not have this kind of policy in action during the period 2000–2013. Results show that the effect of the R&D tax incentives on Inward BERD is positive, with an initial flat region and a steeper one starting at a dose around 40%, which corresponds to a tax incentive ratio on Total BERD of 6.8% (tax rate relief). The positive and statistically significant pattern starts however from a dose around 65% onwards, which corresponds to an 11.1% of tax relief. This result shows a relatively low sensitivity of Inward BERD to the R&D fiscal regime, except for the case of a high and thus costly incentive intensity.

Keywords: MNEs; R&D; Fiscal relief; Counterfactual models (search for similar items in EconPapers)
JEL-codes: C21 F3 H25 O3 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s40888-018-0123-5

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