This paper assesses the magnitude and effects of tax incentives towards research and development (R&D) around the globe. It establishes the biggest existing data-set on such incentives, covering 106 countries annually between 1996 and 2012. We formulate two combined measures of tax incentives: one is a measure of effective marginal tax reductions on R&D incentives, referred to as the b-index in the literature, of which existing data-sets cover up to 38 countries; a second, novel one is the effective average tax rate on profits from R&D investments (EAT R R&D), which is not available from other databases. Marginal tax incentives are only relevant for R&D investments at the intensive project margin, but they are nonetheless commonly used to analyze extensive project margin outcomes such as patent filing and trading or even research lab location due to lacking data on effective average tax rates. The paper assesses effects of these incentives on the filing and trading of patents (conditional on other drivers of patenting) based on some 2 million patent incidents from the European Patent Office. The results suggest that a higher level of effective average front-end R&D tax incentives raise the propensity to file and acquire patents, and they reduce the incentive to sell patents. Moreover, more extensive effective average back-end R&D tax incentives raise the propensity to acquire patents. The partial effects of statutory tax rates and the net-present value of depreciation allowances underlying effective average tax rates are larger in absolute value than those underlying effective marginal tax rates (the b-index) for both patent filing and trading. Hence, inappropriately using the b-index for extensive research-investment or patenting margins may lead to a downward-biased incidence of important tax instruments for research activities at the extensive margin. * The authors gratefully acknowledge funding from the Swiss Science Foundation (SNF) through grant number 132513. We would like to thank Jacek Warda for providing us with helpful comments on the b-index. Furthermore, we are indebted to Michael Devereux, Michael Keen and Joel Slemrod as well as the participants of the IIPF doctoral school in Oxford 2014 and the 2015 Conference on IP Statistics for Decision Makers (IPSDM) at Vienna for helpful comments on an earlier version of the paper. The present version of the paper is a preliminary version prepared for the 63 rd Panel Meeting of Economic Policy , April 2016.

This paper formulates a model of economic growth to study the effects of broad capital taxation (of profits, dividends, and capital gains) on macroeconomic outcomes in small open economies. A framework of exogenous growth permits modeling countries in transition to a country-specific steady state and to discern steady-state and transitory effects of shocks on economic outcomes. The chosen framework is amenable to structural estimation and, in view of the parsimony of the model, fits data on 79 countries over the period 1996-2011 well. The counterfactual analysis based on the estimated model suggests that capital-tax reductions induce positive effects on output and the capital stock (per unit of effective labor) that are economically significant and are accommodated within time windows of 5 years without much further economic response after that. The responses of economic aggregates are found to be relatively strongest to changes in corporate-profit-tax rates and weaker for dividend and capital-gains taxes.

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Earlier work found evidence for geographic linkages of aggregate foreign direct investment across countries and country‐pairs. From a theoretical point of view, such linkages at the macroeconomic level may root in between‐firm as well as within‐firm linkages and originate from information spillovers across or within firms in exploring unknown markets, and vertical linkages between production plants across different locations within the firm. We use data on the universe of German multinational enterprises (MNEs) to empirically explore how marginal investments at one foreign affiliate depend on investments at other affiliates within the same MNE. The empirical approach employs two channels or modes of cross‐affiliate interdependence: mere geography (capturing horizontal linkages through correlated learning and horizontal competition within the firm) and input–output relationships within or across industries (which capture vertical linkages). Adding to earlier findings at the aggregate level, we find evidence of a significant interdependence of investments within the firm. In the firm‐level data at hand, vertical linkages appear to be more important than horizontal ones. Investments at one location tend to stimulate investments at other locations of the same MNE, particularly if input linkages are strong. The opposite seems to be true for output linkages. Beyond vertical linkages, mere geographic proximity matters only to a minor extent. This suggests that evidence of linkages through geographic closeness at aggregate data levels accrue mainly to reasons of vertical linkages within networks of affiliates. (JEL C31, D22, F21, F23, F68, G31, H32)