Business taxes, management delegation, and growth

Maurizio Iacopetta and Pietro Peretto

European Economic Review, 2024, vol. 170, issue C

Abstract: We examine the interaction between agency issues and business taxation in a growth model with an endogenous market structure. Agency issues arise from two types of management delegation: day-to-day production and research and development (R&D) activities. We calibrate the model to the US economy. A reduction in profit tax fosters business dynamics, R&D investments, and income growth in the short and medium term but hampers long-term growth. Lower-quality governance dampens short-term income gains and amplifies long-term growth losses. Additionally, we compare the effects of profit tax cuts with those from dividend and executive income tax cuts. Our analysis includes a welfare and inequality evaluation of profit tax reforms.

Keywords: Taxation; Corporate governance; Innovation; Market structure (search for similar items in EconPapers)
JEL-codes: G35 H25 L22 O31 O41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:170:y:2024:i:c:s001429212400179x

DOI: 10.1016/j.euroecorev.2024.104850

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