The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis

In this article, we aim at a better understanding and measurement of the importance of R&D tax incentive as a driver of R&D investments of MNEs. Using data both at sectoral and country level, we develop two counterfactual exercises to provide evidence on the effects of R&D tax relief on MNEs' inward R&D business investments (Inward BERD): a matching and a continuous-treatment econometric model. In this counterfactual perspective, we compare Countries with a tax incentive scheme for R&D and countries that do not have this kind of policy in action during the period 2000-2013. Results show that the effect of the R&D tax incentives on Inward BERD is positive, with an initial flat region and a steeper one starting at a dose around 40%, which corresponds to a tax incentive ratio on Total BERD of 6.8% (tax rate relief). The positive and statistically significant pattern starts however from a dose around 65% onwards, which corresponds to an 11.1% of tax relief. This result shows a relatively low sensitivity of Inward BERD to the R&D fiscal regime, except for the case of a high and thus costly incentive intensity.