The short-term effect of Patent Box regimes

Sammanfattning: In an effort to secure future economic growth, several European countries have adopted policies putting significantly lower tax rates on income derived from patented products-implementing so called Patent Box Regimes. A handful of recent studies show that firms actively relocate intellectual property to low-tax countries using foreign subsidiaries. In this paper, we provide evidence that there has been a short-term effect on where and to what extent patent applications are filed because of the implementation of these tax policies. Using data from 21 OECD countries from 2000-2010, we estimate the effect on the aggregate number of patent applications using pooled ordinary least squares, including country and year fixed effects to account for unobserved heterogeneity. We find that Patent Box countries on average have experienced a 20.6 percent increase in foreign inventor patenting. At the same time, domestic inventors' propensity to patent R&D activities has increased by 14.6 percent. Despite concerns of serial correlation and endogeneity, we conclude there is evidence of Patent Boxes having a positive effect on the number of patent applications to the European Patent Office.