Growth Effects of Capital Income Taxes: How Much Does Endogenous Innovation Matter?

Hwan Lin and Benjamin Russo ()

Journal of Public Economic Theory, 2002, vol. 4, issue 4, 613-640

Abstract: The paper compares the way economies with exogenous and endogenous innovation respond to capital income taxes. If innovation is exogenous, tax cuts increase saving. If innovation is endogenous, tax cuts increase innovation as well. Faster innovation raises capital productivity and calls forth still more saving. A larger capital stock lowers the discount rate, increases the present value of monopoly profit and calls for faster innovation. How large a difference endogenous innovation might make is an open question. We calculate numerical solutions of a model including features of the U.S. tax code that affect incentives to innovate. The results suggest that models with exogenous innovation substantially underestimate long–run effects of capital income taxes.

Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://doi.org/10.1111/1097-3923.00112

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:4:y:2002:i:4:p:613-640

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1097-3923

Access Statistics for this article

Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders

More articles in Journal of Public Economic Theory from Association for Public Economic Theory Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().