Impact of the intellectual property tax regime on FDI in R&D activities at the city level

This article investigates the impact of the introduction of the patent box/IP regime on foreign direct investment (FDI) inflows in R&D and related activities, including design, developing, and testing activities, using city level data. The data are based on approximately 1,200 cities in 80 countries. Results obtained by use of a difference‐in‐differences estimator show that the introduction of the patent/IP box regime in the Netherlands has led to increases in the FDI inflows in R&D and related activities in the subsequent three‐year period. For Spain and Belgium, no significant effects could be found. The results are robust when other important factors are accounted for (capital city, city population, quality of local university, presence of an airport, R&D tax incentives, protection of property rights, and PISA ratings in mathematics and science) and different measures of FDI inflows (number of FDI projects, capital flows, and number of jobs generated).