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Taxes, Technology Transfer, and the R&D Activities of Multinational Firms

In: The Effects of Taxation on Multinational Corporations

  • James R. Hines, Jr.

Multinational firms that use domestic technologies in foreign locations are required to pay royalties from foreign users to domestic owners. Foreign governments often tax these royalty payments. High royalty tax rates raise the cost of imported technologies. This paper examines the effect of royalty taxes on the local R&D intensities for foreign affiliates of multinational corporations, looking both at foreign-owned affiliates in the United States and at American-owned affiliates in other countries. The results indicate that higher royalty taxes are associated with greater R&D intensity on the part of affiliates, suggesting that local R&D is a substitute for imported technology.

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This chapter was published in:
  • Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7745.
    Handle: RePEc:nbr:nberch:7745
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
    2. Hines, J.R.J. & Hubbard, R.G., 1989. "Coming Home To America - Devidend Repatriations By U.S. Multinationals," Papers 146, Princeton, Woodrow Wilson School - Public and International Affairs.
    3. David Harris & Randall Morck & Joel B. Slemrod, 1993. "Income Shifting in U.S. Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 277-308 National Bureau of Economic Research, Inc.
    4. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August.
    5. Mansfield, Edwin & Teece, David & Romeo, Anthony, 1979. "Overseas Research and Development by US-Based Firms," Economica, London School of Economics and Political Science, vol. 46(182), pages 187-96, May.
    6. James R. Hines, Jr. & Eric M. Rice, 1990. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
    7. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
    8. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
    9. Magnus Blomstrom, 1991. "Host Country Benefits of Foreign Investment," NBER Working Papers 3615, National Bureau of Economic Research, Inc.
    10. Magnus Blomstrom & Ari Kokko, 1993. "Policies to Encourage Inflows of Technology Through Foreign Multinationals," NBER Working Papers 4289, National Bureau of Economic Research, Inc.
    11. James R. Hines, Jr., 1994. "No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 65-104 National Bureau of Economic Research, Inc.
    12. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    13. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
    14. Nadiri, M.I., 1993. "Innovations and Technological Spillovers," Working Papers 93-31, C.V. Starr Center for Applied Economics, New York University.
    15. Davidson, W H & McFetridge, Donald G, 1984. "International Technology Transactions and the Theory of the Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 32(3), pages 253-64, March.
    16. Hines, J.R., 1990. "The Flight Paths Of Migratory Corporations," Papers 65, Princeton, Woodrow Wilson School - Discussion Paper.
    17. Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January.
    18. Kopits, George F, 1976. "Intra-firm Royalties Crossing Frontiers and Transfer-Pricing Behaviour," Economic Journal, Royal Economic Society, vol. 86(344), pages 791-805, December.
    19. Bronwyn H. Hall., 1993. "R&D Tax Policy During the 1980s: Success or Failure?," Economics Working Papers 93-208, University of California at Berkeley.
    20. Zejan, Mario C, 1990. " R&D Activities in Affiliates of Swedish Multinational Enterprises," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 487-500.
    21. Mansfield, Edwin & Romeo, Anthony, 1980. "Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 737-50, December.
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