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The Effect of Innovation Box Regimes on Income Shifting and Real Activity

Author

Listed:
  • Chen, Shannon

    (University of AZ)

  • De Simnone, Lisa

    (Stanford University)

  • Hanlon, Michelle

    (MIT)

  • Lester, Rebecca

    (Stanford University)

Abstract

We study whether innovation box tax incentives, which reduce tax rates on innovation-related income, are associated with tax-motivated income shifting and local investment in the countries that implement these regimes. Using a matched sample of European multinationals' subsidiaries operating in Europe, we find evidence consistent with firms engaging in less tax-motivated income shifting out of the country following the implementation of innovation boxes that provide the greatest tax benefits. We also find that innovation box regimes are associated with higher levels of fixed asset investment. Our study contributes to the patent box literature by evaluating outcomes that the literature has not previously examined and by informing the ongoing policy debate regarding the economic effects of innovation box regimes.

Suggested Citation

  • Chen, Shannon & De Simnone, Lisa & Hanlon, Michelle & Lester, Rebecca, 2017. "The Effect of Innovation Box Regimes on Income Shifting and Real Activity," Research Papers 3453, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3453
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    Cited by:

    1. Annette Alstadsæter & Salvador Barrios & Gaetan Nicodeme & Agnieszka Maria Skonieczna & Antonio Vezzani, 2018. "Patent boxes design, patents location, and local R&D," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(93), pages 131-177.
    2. Mark Vancauteren & Michael Polder & Marcel van den Berg, 2019. "The Relationship between Tax Payments and MNE’s Patenting Activities and Implications for Real Economic Activity: Evidence from the Netherlands," NBER Chapters, in: Challenges of Globalization in the Measurement of National Accounts, pages 237-269, National Bureau of Economic Research, Inc.
    3. Schwab, Thomas & Todtenhaupt, Maximilian, 2016. "Spillover from the haven: Cross-border externalities of patent box regimes within multinational firms," ZEW Discussion Papers 16-073, ZEW - Leibniz Centre for European Economic Research.
    4. Bornemann, Tobias & Laplante, Stacie K. & Osswald, Benjamin, 2018. "The effect of intellectual property boxes on innovative activity & effective tax rates," arqus Discussion Papers in Quantitative Tax Research 234, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Marko Köthenbürger & Federica Liberini & Michael Stimmelmayr, 2018. "Is it just Luring Reported Profit? The Case of European Patent Boxes," CESifo Working Paper Series 7061, CESifo.

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