Journal
RESEARCH POLICY
Volume 50, Issue 9, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.respol.2021.104326
Keywords
Multinational firms; R&D tax incentives; R&D investment
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Based on data on unconsolidated R&D activity of MNEs in Europe, the evidence suggests that companies tend to respond to tax incentives by relocating R&D activities across borders rather than increasing R&D activities globally.
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.
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