Corporate Tax Cuts and Economic Growth

Suzuki, Keishun (2019): Corporate Tax Cuts and Economic Growth.

Abstract

Empirical evidence on the effect of corporate income tax on economic growth is mixed. This paper explores the ambiguous mechanism of corporate income tax by using a Schumpeterian growth model with heterogeneous innovators and endogenous market structure. Our main findings are as follows: (i) Corporate tax cuts do not necessarily enhance innovation. (ii) Corporate tax cuts are likely to have a positive growth effect when the research and development (R&D) productivity across firms is heterogeneous. (iii) R&D tax deduction increases the growth rate. (iv) Based on our calibration, the corporate tax cut in 2018 had a negative effect on economic growth and welfare in the U.S. economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corporate income tax, R&D tax deduction, Innovation, Heterogeneity, Endogenous entry, Market competition
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

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