Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108550
Authors: 
d'Andria, Diego
Savin, Ivan
Year of Publication: 
2015
Series/Report no.: 
Jena Economic Research Papers 2015-004
Abstract: 
In the past decades the role of profit sharing schemes (PSS) as a way to foster innovation in a principal-agent context, and more generally of innovation in economic growth, have been widely acknowledged and studied. However, surprisingly little has been done to analyze the interactions between tax policy, PSS and innovative activity, not least because of severe data limitations. In this study we propose an agent-based model to explore the effects of two distinct tax policies on innovation in a pure knowledge economy: a "patent box" incentive and a tax incentive on compensation earned by agents as PSS. A distinct feature of this paper is that in contrast to the conventional assumption that firms (principals) decide on whether to innovate or not, we propose that this decision is actually taken by their employees (agents). We compare the two tax incentives under several distinct specifications and find that the tax incentive on PSS is more efficient than a "patent box" incentive when the role of capital investments in R&D is negligible. With R&D investments in the form of a capacity constraint, both tax incentives are found to play a role in fostering innovation. In addition we find important effects on the incentives´ relative efficacy due to labor mobility and due to the ability of firms to benefit from knowledge spillovers.
Subjects: 
agent-based model
innovation
knowledge economy
profit sharing schemes
tax incentives for R&D
JEL: 
H2
O2
J33
Document Type: 
Working Paper

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