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Taxes, Innovation and Productivity

Author

Listed:
  • James Cloyne

    (University of California Davis, NBER and CEPR)

  • Joseba Martinez

    (London Business School and CEPR)

  • Haroon Mumtaz

    (School of Economics and Finance, Queen Mary, University of London)

  • Paolo Surico

    (London Business School and CEPR)

Abstract

Using a narrative identi cation of tax changes in the United States over the post-WWII period, we document that a temporary cut in corporate income tax rates leads to a long-lasting increase in innovation and productivity, whereas changes in personal income tax rates only have short-term e ects. We show that the results on corporate taxes are consistent with theories of endogenous growth that feature tax amortisation allowances on intellectual property purchases, as in the tax code of most countries in the world. In contrast, personal taxes work primarily through the response of labour supply, which is as transient as the tax change itself.

Suggested Citation

  • James Cloyne & Joseba Martinez & Haroon Mumtaz & Paolo Surico, 2024. "Taxes, Innovation and Productivity," Working Papers 979, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:979
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2024/wp979.pdf
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    References listed on IDEAS

    as
    1. José Luis Montiel Olea & Carolin Pflueger, 2013. "A Robust Test for Weak Instruments," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(3), pages 358-369, July.
    2. Crafts, Nicholas & Mills, Terence C., 2013. "Rearmament to the Rescue? New Estimates of the Impact of “Keynesian” Policies in 1930s' Britain," The Journal of Economic History, Cambridge University Press, vol. 73(4), pages 1077-1104, December.
    3. Joshua C. C. Chan, 2020. "Large Bayesian VARs: A Flexible Kronecker Error Covariance Structure," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(1), pages 68-79, January.
    4. Chiu, Ching-Wai (Jeremy) & Mumtaz, Haroon & Pintér, Gábor, 2017. "Forecasting with VAR models: Fat tails and stochastic volatility," International Journal of Forecasting, Elsevier, vol. 33(4), pages 1124-1143.
    5. James Cloyne, 2013. "Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom," American Economic Review, American Economic Association, vol. 103(4), pages 1507-1528, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    corporate taxes; narrative identi cation; TFP; R&D; technological adoption.;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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