Tax Policy and the Globalisation of R&D

Melbourne Institute Working Paper No. 11/09

Date: April 2009

Author(s):

Russell Thomson

Abstract

This paper examines the factors influencing the globalisation of R&D, with a particular focus on the role of tax policy, using panel data for 25 OECD countries over the period 1980- 2005. Two measures of globalisation are considered - R&D directly financed from abroad and R&D expenditure by affiliates of US multinational enterprises (MNEs). The econometric analysis, which controls for other determinants of inter-country differences in R&D investment, finds no evidence that host country tax policy is an important determinant of MNE location decisions or in attracting cross-border contract R&D. There is evidence that affiliate fixed capital stock and total sales are strong determinants of R&D performed by affiliates of US MNEs. Controlling for these variables, host country attributes seemed to be less important. In the case of cross-border contract R&D, host country expenditure on R&D via institutions of higher education is also found to be important.

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