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The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis

Author

Listed:
  • Giovanni Cerulli

    () (CNR-IRCrES, National Research Council of Italy, Institute for Research on Sustainable Economic Growth)

  • Bianca Potì

    () (CNR-IRCrES, National Research Council of Italy, Institute for Research on Sustainable Economic Growth)

  • Raffaele Spallone

    () (CNR-ISSiRFA, National Research Council of Italy, Institute for the Study of Regionalism, Federalism and Self-Government)

Abstract

In this article, we aim at a better understanding and measurement of the importance of R&D tax incentive as a driver of R&D investments of MNEs. Using data both at sectoral and country level, we develop two counterfactual exercises to provide evidence on the effects of R&D tax relief on MNEs’ inward R&D business investments (Inward BERD): a matching and a continuous-treatment econometric model. In this counterfactual perspective, we compare Countries with a tax incentive scheme for R&D and countries that do not have this kind of policy in action during the period 2000–2013. Results show that the effect of the R&D tax incentives on Inward BERD is positive, with an initial flat region and a steeper one starting at a dose around 40%, which corresponds to a tax incentive ratio on Total BERD of 6.8% (tax rate relief). The positive and statistically significant pattern starts however from a dose around 65% onwards, which corresponds to an 11.1% of tax relief. This result shows a relatively low sensitivity of Inward BERD to the R&D fiscal regime, except for the case of a high and thus costly incentive intensity.

Suggested Citation

  • Giovanni Cerulli & Bianca Potì & Raffaele Spallone, 2018. "The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 649-675, August.
  • Handle: RePEc:spr:epolit:v:35:y:2018:i:2:d:10.1007_s40888-018-0123-5
    DOI: 10.1007/s40888-018-0123-5
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    References listed on IDEAS

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    More about this item

    Keywords

    MNEs; R&D; Fiscal relief; Counterfactual models;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • F3 - International Economics - - International Finance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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