Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306109 
Year of Publication: 
2024
Citation: 
[Journal:] The World Economy [ISSN:] 1467-9701 [Volume:] 47 [Issue:] 9 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 4061-4087
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
Research and development (R&D) by multinational enterprises (MNEs) generates substantial positive cross‐country spillovers. With R&D incentives primarily provided by the MNEs' host countries, these nations bear the entire cost of incentivising R&D but only reap a fraction of the benefits, resulting in inefficiently low R&D incentives and investment from a global perspective. Allowing MNEs to shift their profit to a tax haven shelters the firms' profit from foreign taxation and increases the net returns to R&D without reducing the domestic tax base. In this setting, tax havens can be welfare beneficial because they help to internalise the positive cross‐country spillovers of R&D. The optimal effective minimum tax balances a reduction in wasteful profit shifting and more efficient R&D incentives for MNEs. Regardless of the welfare effect of R&D, a strictly positive minimum tax is optimal for each country. Uncoordinated minimum taxes may be excessively high, if R&D investment has a strong impact on productivity. Under certain circumstances, IP boxes are a welfare‐improving substitute for tax havens.
Subjects: 
corporate taxation
intellectual property
minimum tax
multinational firms
optimum taxation
patent box
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article
Document Version: 
Published Version

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