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In this paper we assess two tax incentives, Patent Boxes and Allowance for Corporate Equity. The former aims at stimulating R&D through a lower effective tax on patent than on current income, the latter at offsetting debt bias via the deduction of a notional interest on equity.
We use a Differences in Differences approach completed by another one based on Effective Tax Rates. In the experimentation with Patent Box, treated countries are Belgium and Netherlands, and control group is Austria, Germany and Italy. In the second one, Allowance for Corporate Equity, treated is Italy – compared to Belgium –, the control being France, and for a robustness test, Germany.
The conclusion is rather favorable to the instruments but needs qualification: if Patent Boxes are attractive for intellectual property rights, there is less or no evidence of an effect on real investment and employment in R&D; Allowance for Corporate Equity reduces firm leverage but its real effect on investment and employment is unclear.
