Taxation and the transfer of technology by multinational firms

This paper analyzes a multinational's transfer of technology to a foreign subsidiary for the case where there is a risk of expropriation. An expropriation is assumed to give rise to competition between the parts of the previous multinational enterprise. To reduce the benefit of expropriation, the multinational generally transfers an inferior technology, even if the transfer of technology is costless. With a reduced benefit of expropriation, the multinational has to pay lower taxes to prevent expropriation. The multinational optimally transfers additional technology over time if it has a finite horizon in the country. For this case, tax payments also are shown to increase over time in a tax holiday like fashion.