The Global Effects of R&D Tax Incentives: Evidence from Micro-Data

Bodo Knoll, Martina Baumann and Nadine Riedel

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: Recent years have seen an unprecedented increase in the provision of R&D tax incentives. A growing empirical literature suggests that R&D tax incentives are instrumental in raising domestic R&D activity. In policy debates this fi nding is often interpreted to lend support to the notion that R&D tax incentives increase national welfare by internalizing knowledge spillovers to other agents in the economy and raising ineffi ciently low R&D levels. Our paper stresses that much of the observed increase in R&D activities in response to R&D tax incentives is in fact related to R&D activities that are attracted from abroad. Using unique panel data on R&D activities of European multinational fi rms, we test for a potential impact of both, R&D tax incentives in the affi liate's host country and R&D tax incentives at other locations of the multinational group. In line with theoretical predictions, we fi nd a positive impact of domestic R&D subsidies and a negative one for foreign subsidies provided at other group locations. Quantitatively, the fi ndings suggest that around 80% of the observed increase in R&D activities is related to relocations of R&D across country borders.

JEL-codes: D62 H25 H71 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cse, nep-ino, nep-pbe, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100347

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