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Attracting profit shifting or fostering innovation? On patent boxes and R&D subsidies

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  • Haufler, Andreas
  • Schindler, Dirk

Abstract

Many countries have introduced patent box regimes in recent years, offering a reduced tax rate to businesses for their IP-related income. In this paper, we analyze how countries set optimal policies when both patent box regimes and R&D subsidies can be used to promote innovation. We show that patent box regimes emerge endogenously under policy competition, but never under policy coordination. Also, a partial tax coordination that abolishes patent box regimes but retains competition in corporate tax rates and R&D subsidies is welfare-improving in most cases. In this setting, policy competition is shifted to R&D subsidies, which cannot be used to attract profit shifting. Finally, we compare the competition for mobile patents with the competition for mobile R&D units and show that enforcing a nexus principle is likely to reduce the aggressiveness of patent box regimes.

Suggested Citation

  • Haufler, Andreas & Schindler, Dirk, 2023. "Attracting profit shifting or fostering innovation? On patent boxes and R&D subsidies," European Economic Review, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:eecrev:v:155:y:2023:i:c:s0014292123000752
    DOI: 10.1016/j.euroecorev.2023.104446
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    Cited by:

    1. S. Juranek & D. Schindler & A. Schneider, 2023. "Royalty taxation under tax competition and profit shifting," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1377-1412, November.
    2. Jay Pil Choi & Jota Ishikawa & Hirofumi Okoshi, 2024. "Tax havens and cross-border licensing with transfer pricing regulation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 333-366, April.
    3. Li, Qin & Ma, Mark (Shuai) & Shevlin, Terry, 2021. "The effect of tax avoidance crackdown on corporate innovation," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    4. Pranvera Shehaj & Alfons J. Weichenrieder, 2024. "Corporate income tax, IP boxes and the location of R&D," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 203-242, February.
    5. Barbara Zbroinska & Izabela Konieczna, 2025. "Reactions of Entrepreneurs and Effects of Introduction of Intellectual Property Box Privilege in Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 395-405.

    More about this item

    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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