Dynamic effects of anticipated and temporary tax changes in a R&D-Based growth model

Kizuku Takao ()
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Kizuku Takao: Graduate School of Economics, Osaka University

No 14-10, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Tax changes are often announced before the implementations and are not permanent but only temporary. R&D firms will optimally adjust their investment decision to a tax schedule accordingly. This paper analyzes how anticipated and temporary tax changes dynamically affect the innovation activities. For the purpose, we consider adjustment costs for the investment process and allow firms to make a forward looking investment decision in the framework of an R&D-based endogenous growth model. Calibrating the model with U.S. data, we obtain new insights on how to design the corporate taxation policy. A dividend tax cut is not an effective policy instrument irrespective of how it is implemented. On the other hand, a capital gains tax cut and a rise of the R&D tax credit rate are an effective policy instrument irrespective of how they are implemented. However, the implementation lags of these tax changes worsen the effectiveness of them.

Keywords: Fiscal policy; R&D; Economic growth (search for similar items in EconPapers)
JEL-codes: E62 O32 O41 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-02
New Economics Papers: this item is included in nep-acc, nep-gro, nep-ino, nep-mac, nep-pbe and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1410

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