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Davies, Ronald B.
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Davies, Ronald B.
Official Name
Davies, Ronald B.
Research Output
Now showing 1 - 6 of 6
- PublicationThe Impact of Taxes on the Extensive and Intensive Margins of FDI(University College Dublin. School of Economics, 2016-08)
; ; The design of optimal tax policy, especially with respect to attracting FDI, hinges on whether taxes affect multinational firms at the extensive or the intensive margins. Nevertheless, the literature has not yet explored the simultaneous impact of taxation on FDI on these two margins. Using firm-level cross-border investments into Europe during 2004-2013, we do so with a Heckman two-step estimator, an approach which also allows us to endogenize the number of investments and include home country and parent firm characteristics. We find that taxes affect both margins, particularly for firms that invest only once, with 92 percent of tax-induced changes in aggregate inbound FDI driven by movements at the extensive margin. In addition, we find significant effects of both home country and parent firm characteristics, pointing towards the granularity of investment decisions.218 - PublicationPatent Boxes and the Success Rate of Applications(University College Dublin. School of Economics, 2021-04-21)
; ; Patent boxes significantly reduce the corporate tax rate applied to income earned from a patent. This incentivizes firms to increase the likelihood of a patent application being granted by creating more novel research and using more successful legal representation when filing the application. Conversely, it supports submitting applications for marginally novel innovations that otherwise would not have been submitted, lowering the probability of success. We use data from applications to the European Patent Office from 1978 to 2019 and find that the introduction of a patent box increases the average success rate of applications from large, corporate innovators by 6.9 percentage points. This impact only materializes two years after a patent box takes effect, suggesting that improved research effort is the dominant response by firms. Therefore patent boxes may help to increase innovation novelty and improve the overall quality of research.112 - PublicationEconomic Integration and the Optimal Corporate Tax Structure with Heterogeneous Firms(University College Dublin. School of Economics, 2011-08)
; ; We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to effectively subsidize capital inputs by granting a tax allowance in excess of the true costs of capital. Economic integration reduces the optimal capital subsidy and drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when trade barriers fall, in addition to the well-known direct effects.291 - PublicationCompetition in Taxes and IPR(University College Dublin. School of Economics, 2020-06)
; ; ; We examine competition for foreign direct investment when governments compete in tax incentives along with intellectual property rights (IRPs) protection. Higher IPRs result in a lower probability of the multinational enterprise (MNE) being imitated and thus higher expected profits and tax revenues, all else equal. We show that, from the perspective of competing hosts, equilibrium IPRs are too high while taxes are too low. Coordination between jurisdictions can therefore lower the multinational's expected payoff, providing a rationale for why during recent trade negotiations FDI home countries complain about low IPRs in some locations while not pushing for them to be centrally determined.108 - PublicationLearning to Tax ?- Interjurisdictional Tax Competition under Incomplete InformationWe present a multi-period model in which countries set source-based taxes without having precise information how their and their neighbours' tax rates affect the tax base. Countries can learn from past experience and from observing their neighbours' outcomes and/or tax policy choices. We consider the sequence of Markov perfect equilibria and show that the beliefs become more precise over time and, eventually, correct. The precision of beliefs in a given period increases in the number of observed countries. In equilibrium, tax rates are inefficiently low if the value of learning is positive and the pace of learning increases in the level of tax rates (because higher tax rates trigger larger tax base effects which helps learning); in the presence of fiscal externalities, tax rates are too homogeneous (because variance in tax policies enhances learning). If, due to fiscal externalities, the value of learning is negative, the opposite may be true. From the viewpoint of empirical measurement, the model generates time patterns that look as if countries react to each other even if there are no fiscal externalities. We conclude that the existing evidence may therefore be inconclusive with regard to the existence of tax competition.
248 - PublicationNegotiated Transfer PricesThe predominant model of tax induced transfer pricing is based on the assumption that profit shifting is due to insufficient enforcement. However, evidence shows that the firms responsible for most profit shifting are also among the most frequently audited. We present an alternative model based on negotiations that avoid costly, yet uncertain, formal proceedings (e.g. court procedures). This model predicts that profit shifting increases in the tax gap even though enforcement is perfect. Further, it suggests that current efforts to streamline international tax law may have the unintended effect of increasing profit shifting.
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