Cross-border effects of R&D tax incentives

Knoll, Bodo; Riedel, Nadine; Schwab, Thomas; Todtenhaupt, Maximilian and Voget, Johannes (2021): Cross-border effects of R&D tax incentives. In: Research Policy, Vol. 50, No. 9, 104326

Abstract

Existing evidence shows that R&D tax incentives boost countries' private sector R&D. Given the importance of multinational enterprises (MNEs) for private sector innovation, it is unclear, however, whether firms engage in genuinely new R&D or whether R&D is reallocated across borders. Drawing on data on unconsolidated R&D activity of MNEs in Europe, we provide evidence that responses are dominated by cross-border relocations: More generous tax incentives in one country increase MNEs' R&D investments in affiliates located there, while lowering R&D investments in affiliates of the same MNE group located in other countries. Globally, firms hardly raise their R&D activities when tax incentives become more generous.

• Item Type: Journal article
• Faculties: Economics
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 0048-7333
• Language: English