Tax and Non-tax Government Policies and the Location and Relocation of Patents

In this study, we shed light on the combined effect of corporate income tax and other government policies on multinational corporations’ (MNCs) strategic location and relocation of intellectual property. Using granular affiliate-level data for worldwide MNCs, we show that the location of granted and acquired patents generally responds negatively to corporate income tax rates and stricter employment protection laws. However, stricter employment protection laws mitigate the attractiveness of low corporate income tax rates in MNCs’ patent location decisions. Additional tests suggest that larger MNCs respond more than smaller MNCs to lenient employment protection laws and personal tax benefits aimed at highly skilled workers, while smaller MNCs respond more than large MNCs to corporate income tax incentives when choosing where to locate granted or acquired patents. Further, results vary predictably with migrant labor mobility and over time. Our study contributes to the tax policy debate over cross-border competition for innovative activities by examining the effect of both corporate income tax and other policies on firm’s IP location and relocation decisions