The effect of patent boxes on foreign direct investment in Europe

Sammanfattning: Since Patent Boxes’ first emergence in the 1970’s in Ireland their presence has been fiercely debated. Since their appearance they have grown in numbers and are now present in a multitude of countries across the world. From the perspective of countries and their respective government the reason to their implementation are the following: (i) to incentivize investment in R&D, (ii) to attract (or retain) mobile investments associated with knowledge creation and high-skilled jobs and to (iii) raise revenue more efficiently on mobile income streams. For multinational corporations the reason as to why patent boxes are valued is more straightforward, as their existence allow for larger profits by lowering the tax burden imposed and thus enabling larger net profits. This study examines the relationship between foreign direct investment inflow and patent boxes through time series regressions. The sample was divided into two groups, wealthy and not wealthy countries in order to capture fundamental differences among the subsets. The study confirms that patent boxes do have a positive significant effect on FDI, though only for the wealthy subset group. Why this result shows inconsistencies between the subsets is hard to determine and requires further examination.