| Abstract: |
This paper considers the methods by which some existing laws and proposals
offer different tax rates to different types of capital, a scheme variously
known as a patent box, innovation box, or intellectual property box (IP box).
It presents a model of international tax competition—what tax experts call a
race to the bottom and competition experts call Bertrand competition—with some
capital fixed and some easily moved across borders. The model finds that the
highest expected tax revenue from mobile IP for a country hosting a large
amount of fixed, non-IP capital comes from assigning a single tax rate to all
types of capital—that is, from not implementing an IP box. In the context of
Bertrand competition, firms optimize revenue when not engaging in price
discrimination across types of customers. As a research and development (R&D)
credit, several examples show that the IP box is more easily manipulated than
a traditional credit on R&D expenses. |