R&D INTENSITY AND THE EFFECTIVE TAX RATE: A META‐REGRESSION ANALYSIS

• Published in: Journal of economic surveys 2017-09, Vol.31 (4), p.988-1010
• Main Authors: Belz, Thomas, Hagen, Dominik, Steffens, Christian
• Format: Article
• Language: English
• Subjects: Bias; Conformity; Effective income tax rates; Effective tax rate; Intangible assets; Intellectual property; Literature reviews; Meta‐regression analysis; Multinational corporations; Profit shifting; R&D; R&D intensity; Regression analysis; Research & development; Research & development expenditures; Tax accounting; Tax rates; Taxation
• ISSN: 0950-0804; 1467-6419
• DOI: 10.1111/joes.12181

We apply meta‐regression techniques to provide a quantitative review of the empirical literature on how research and development (R&D) expenses affect the effective tax rate (ETR). R&D expenses relate to a well‐accepted profit shifting channel, strategic placement of intellectual property within a multinational entity. Using a unique hand‐collected data set, we add a new perspective to the current base erosion and profit shifting (BEPS) state of research and debate, in three ways: First, observing that primary studies report mixed evidence on how R&D expenses affect ETR, we provide a consensus estimate for this effect. Second, we consider this effect in more detail by separating a tax accounting effect and a profit shifting effect, which to our knowledge has not yet been investigated. We detect that one‐third of the R&D effect on the ETR is due to the tax accounting effect and could be mitigated via book‐tax conformity. We further find that 10% of the profit shifting effect can be traced back to R&D tax credits. Third, our meta‐regression reveals factors that are possible sources of variation and bias in previous empirical studies.