The Dynamic Effects of Income Tax Changes in a World of Ideas

James Cloyne, Joseba Martinez, Haroon Mumtaz and Paolo Surico
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Haroon Mumtaz: Queen Mary, University of London

No 970, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: Using a narrative identification of US tax changes over the post-WWII period, we show that corporate income tax cuts foster R&D spending and innovation, leading to a persistent increase in aggregate productivity and output. In contrast, changes in the average personal income tax rate have mostly short-term e ects. An estimated endogenous productivity model highlights therole of "applied research" - over and above formal R&D - as a main force behind these results, and suggests a social rate of return to investment in innovation between 20% and 75%.

Keywords: corporate taxes; narrative identification; TFP; R&D; technological adoption. (search for similar items in EconPapers)
JEL-codes: E23 E62 O32 O34 O38 (search for similar items in EconPapers)
Date: 2023-12-01
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Working Paper: The Dynamic Effects of Income Tax Changes in a World of Ideas (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:970

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