Taxation and innovation : an empirical study of the impact of corporate taxation on innovation in Europe
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- Master Thesis 
This master’s thesis aims to study the empirical relationship between taxation and innovation in Europe. To analyse this relationship, we propose the following research question: How do corporate income tax rates impact the number of patent applications in Europe? In order to investigate this research question, we construct a unique panel dataset from OECD patent and taxation data. The panel includes observations from 26 European OECD countries in the time period 1981 to 2017. The study is based on a quantitative analysis with a deductive and explanatory research approach. We develop an econometric model using fixed effects estimation which we use to analyse a two-sided hypothesis. The analyses suggest that an increase in corporate taxation has historically led to decreased innovation. We do not find statistically sufficient evidence to conclude this effect for the two time periods 1981 to 1989 and 1990 to 1999, but we find a significant effect in the time period of 2000 to 2010. Contradictorily to the existing literature, we also find evidence that suggests that the historical effect that is observed until 2010 flips in the time period from 2010 to 2017. We discuss whether this change might be a sign of a turning trend in the impact of corporate taxation on innovation in Europe. Because multiple European countries recently have introduced special tax policies, we argue that the introduction of patent boxes might be an explanation. These findings are an exciting turn of events. However, further research is necessary to fully conclude or disprove the latter finding of a regime change in corporate taxation of innovation. Our results contribute to the existing literature by studying the impact of corporate taxation on innovation in a larger sample of European OECD countries and over a longer time frame than previous research. We also contribute with new insight related to a potential regime change.