Short-Term Tax Cuts, Long-Term Stimulus

James Cloyne, Joseba Martinez, Haroon Mumtaz and Paolo Surico

No 17455, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using a narrative identification of tax changes in the United States over the period 1950-2019, we document that a temporary cut in corporate income tax rates leads to a long-lasting increase in innovation and productivity. An estimated endogenous productivity model reveals that the long period of tax amortization for the purchases of Intellectual Property Products (IPP) featured in the US tax code over most of the sample is crucial to account for this finding. We provide direct evidence on the model mechanism by showing that a temporary corporate tax cut generates a more pronounced jump in the share prices of patent-rich firms, leading to a persistent increase in R&D expenditure, non-R&D IPP investment, patents and trademark assignments.

Keywords: TFP; Corporation tax; Hysteresis; Narrative identification (search for similar items in EconPapers)
JEL-codes: E23 E62 H24 H25 H31 H32 O32 (search for similar items in EconPapers)
Date: 2022-07
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