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Business taxes, management delegation, and growth

Author

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  • Iacopetta, Maurizio
  • Peretto, Pietro F.

Abstract

We examine the interaction between agency issues and business taxation in a growth model with an endogenous market structure. Agency issues arise from two types of management delegation: day-to-day production and research and development (R&D) activities. We calibrate the model to the US economy. A reduction in profit tax fosters business dynamics, R&D investments, and income growth in the short and medium term but hampers long-term growth. Lower-quality governance dampens short-term income gains and amplifies long-term growth losses. Additionally, we compare the effects of profit tax cuts with those from dividend and executive income tax cuts. Our analysis includes a welfare and inequality evaluation of profit tax reforms.

Suggested Citation

  • Iacopetta, Maurizio & Peretto, Pietro F., 2024. "Business taxes, management delegation, and growth," European Economic Review, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s001429212400179x
    DOI: 10.1016/j.euroecorev.2024.104850
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    More about this item

    Keywords

    Taxation; Corporate governance; Innovation; Market structure;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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