Corporate Tax Cuts and Economic Growth
MPRA Paper from University Library of Munich, Germany
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)
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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