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Corporate Tax Cuts and Economic Growth

Keishun Suzuki

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Corporate income tax; R&D tax deduction; Innovation; Heterogeneity; Endogenous entry; Market competition (search for similar items in EconPapers)
JEL-codes: H21 H25 O31 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-gro, nep-ino, nep-pbe and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:97829

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