Working Paper: CEPR ID: DP8424
Authors: Rachel Griffith; Helen Miller; Martin O'Connell
Abstract: The literature suggests that tax rates on mobile activities should fall to zero. Intellectual property is very mobile and has grown in importance. Firms can use intellectual property to shift income offshore and reduce their corporate income tax liability. Yet most intellectual property is held in relatively high tax countries. We estimate the impact of corporate taxes on where firms hold patents. We consider domestic and international taxes, and control for the potential non-tax costs and benefits associated with different locations. We allow heterogeneity across industries, firm size and, most importantly, unobservable patent specific heterogeneity in the responsiveness of patent location to tax. Our results suggest that, on average, corporate tax rates have a negative impact on the likelihood of a firm choosing a location, and that there is substantial heterogeneity in responses. We simulate the impact of recent reforms that apply a lower tax rate to patent income, finding that they attract patent income but result in losses in government revenues.
Keywords: corporate tax; intellectual property; multinational firms; patent box
JEL Codes: F21; F23; H3; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate tax rates (H25) | Likelihood of a firm choosing a location to hold patents (R30) |
| Higher corporate tax rates (H29) | Probability of locating patents in a particular jurisdiction (K33) |
| Tax reforms (lower tax rates for patent income) (H29) | Attract patent income (O34) |
| Tax reforms (lower tax rates for patent income) (H29) | Losses in government revenues (H29) |