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Short-Term Tax Cuts, Long-Term Stimulus

Author

Listed:
  • Cloyne, James
  • Martinez, Joseba
  • Mumtaz, Haroon
  • Surico, Paolo

Abstract

Using a narrative identification of tax changes in the United States over the period 1950-2019, we document that a temporary cut in corporate income tax rates leads to a long-lasting increase in innovation and productivity. An estimated endogenous productivity model reveals that the long period of tax amortization for the purchases of Intellectual Property Products (IPP) featured in the US tax code over most of the sample is crucial to account for this finding. We provide direct evidence on the model mechanism by showing that a temporary corporate tax cut generates a more pronounced jump in the share prices of patent-rich firms, leading to a persistent increase in R&D expenditure, non-R&D IPP investment, patents and trademark assignments.

Suggested Citation

  • Cloyne, James & Martinez, Joseba & Mumtaz, Haroon & Surico, Paolo, 2022. "Short-Term Tax Cuts, Long-Term Stimulus," CEPR Discussion Papers 17455, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17455
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    File URL: https://cepr.org/publications/DP17455
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    Cited by:

    1. is not listed on IDEAS
    2. Lester, Rebecca & Olbert, Marcel, 2025. "Firms’ real and reporting responses to taxation: A review," Journal of Accounting and Economics, Elsevier, vol. 80(2).

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    Keywords

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    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
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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