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Knoll, Bodo, Nadine Riedel, Thomas Schwab, Maximilian Todtenhaupt and Johannes Voget: Cross-border effects of R&D tax incentives, Research Policy, 2021, 50(9), 104326, Online 28.07.2021.

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.

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