New Publication by Nadine Riedel, together with Bodo Knoll (Ruhr-University Bochum), Thomas Schwab (University of Munich), Maximilian Todtenhaupt (Norwegian School of Economics), and Johannes Voget (University of Mannheim) in the Research Policy.
Existing evidence shows that R&D tax incentives boost countries’ private sector R&D. Given the importance of multinational enterprises (MNEs) for private sector innovation, it is unclear, however, whether firms engage in genuinely new R&D or whether R&D is reallocated across borders. Drawing on data on unconsolidated R&D activity of MNEs in Europe, we provide evidence that responses are dominated by cross-border relocations: More generous tax incentives in one country increase MNEs’ R&D investments in affiliates located there, while lowering R&D investments in affiliates of the same MNE group located in other countries. Globally, firms hardly raise their R&D activities when tax incentives become more generous.