In this paper, I conduct a comparative study of the tax policies implemented by the European Union and the United States to enhance innovation in the pharmaceutical, biotechnology, and medical technology industries.
These industries are quite peculiar, because of the high social impact of the projects and the specific market dynamics, like, for instance, in orphan drugs and vaccines. The flow of knowledge is a fundamental engine for innovation in these sectors, and the role of intellectual property rights seems uncertain, according to contrasting results in empirical research.
Therefore, the use of the tax system to incentivize investments and R&D activities in these sectors can take on a prominent role. However, tax incentives need to be carefully designed, and their adoption might need some industry-specific considerations. The first part of this work will focus on these considerations of tax policy design, differentiating between human capital- and capital expenditures-oriented tax incentives and identifying the main instruments adopted by the EU Member States and the US. In this context, I analyze different types of tax incentives, both sector-specific and general, like cashable or non-cashable R&D tax credits, Intellectual Property Boxes, personal income tax reductions for highly skilled individuals, and capital gains taxes.
In the second part of the paper, I conduct a comparative analysis of the regulatory frameworks of the European Union and the United States. In comparing the two different ways of achieving similar objectives, I formulate specific considerations on the different designs of the tax policies, underlining potential causes and consequences of different choices. In understanding the effects of the converging and diverging policy choices, which are often rooted in the regulatory structures of the two Transatlantic blocs, I take into account macroeconomic trends and firms’ investment data. Consequently, I draw final considerations according to the findings of the analysis, including hints for further research.