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Dewit, Gerda and Leahy, Dermot (2020) Thinking inside the box: Optimal policy towards a footloose R&D‐intensive firm. Journal of Public Economic Theory, 22 (6). pp. 1921-1942. ISSN 1097-3923
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J Public Economic Theory - 2020 - Dewit - Thinking inside the box Optimal policy towards a footloose R D‐intensive firm.pdf
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Abstract
We derive the optimal policy mix of Research and Development (R&D)‐subsidies and corporate tax rates towards a footloose R&D‐intensive firm. In-creasing R&D‐subsidies strengthens the firm's incentive to offshore production. The firm's home government can offset this by offering an appropriate corporate tax concession. The optimal policy package exhibits a “Matthew principle”: higher R&D‐subsidies should typically be accompanied by lower tax rates. However, if the R&D‐subsidy exceeds a crucial threshold, a tax concession can no longer prevent offshoring. We find that it is never optimal to raise tax rates as R&D‐subsidies increase.
| Item Type: | Article |
|---|---|
| Keywords: | Thinking inside the box; Optimal policy; footloose R&D-intensive firm; |
| Academic Unit: | Faculty of Social Sciences > Economics, Finance and Accounting |
| Item ID: | 19251 |
| Identification Number: | 10.1111/jpet.12478 |
| Depositing User: | Dermot Leahy |
| Date Deposited: | 10 Dec 2024 15:31 |
| Journal or Publication Title: | Journal of Public Economic Theory |
| Publisher: | Wiley-Blackwell |
| Refereed: | Yes |
| Related URLs: | |
| URI: | https://mural.maynoothuniversity.ie/id/eprint/19251 |
| Use Licence: | This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here |
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