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Intellectual Property Boxes and the Paradox of Price Discrimination

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  • Ben Klemens

    (U.S. Treasury)

Abstract

This paper considers the methods by which some existing laws and proposals offer different tax rates to different types of capital, a scheme variously known as a patent box, innovation box, or intellectual property box (IP box). It presents a model of international tax competition—what tax experts call a race to the bottom and competition experts call Bertrand competition—with some capital fixed and some easily moved across borders. The model finds that the highest expected tax revenue from mobile IP for a country hosting a large amount of fixed, non-IP capital comes from assigning a single tax rate to all types of capital—that is, from not implementing an IP box. In the context of Bertrand competition, firms optimize revenue when not engaging in price discrimination across types of customers. As a research and development (R&D) credit, several examples show that the IP box is more easily manipulated than a traditional credit on R&D expenses.

Suggested Citation

  • Ben Klemens, 2017. "Intellectual Property Boxes and the Paradox of Price Discrimination," Working Papers 1703, Council on Economic Policies.
    • Handle: RePEc:ceq:wpaper:1703
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    References listed on IDEAS

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    1. Sebastien Bradley & Estelle Dauchy & Leslie Robinson, 2015. "Cross-Country Evidence on the Preliminary Effects of Patent Box Regimes on Patent Activity and Ownership," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(4), pages 1047-1072, December.
    2. Baye, Michael R. & Morgan, John, 1999. "A folk theorem for one-shot Bertrand games," Economics Letters, Elsevier, vol. 65(1), pages 59-65, October.
    3. James Bessen & Jennifer L. Ford & Michael J. Meurer, 2011. "The Private and Social Costs of Patent Trolls," Working Papers 1103, Research on Innovation.
    4. Blume, Andreas, 2003. "Bertrand without fudge," Economics Letters, Elsevier, vol. 78(2), pages 167-168, February.
    5. Lisa Evers & Helen Miller & Christoph Spengel, 2015. "Intellectual property box regimes: effective tax rates and tax policy considerations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 502-530, June.
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    Cited by:

    1. Ben Klemens, 2021. "Attributing Value to Patents and Trademarks in Complex Production Chains," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 842-875, June.

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