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Dynamic effects of anticipated and temporary tax changes in a R&D-Based growth model

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  • Kizuku Takao

    (Graduate School of Economics, Osaka University)

Abstract

Tax changes are often announced before the implementations and are not permanent but only temporary. R&D firms will optimally adjust their investment decision to a tax schedule accordingly. This paper analyzes how anticipated and temporary tax changes dynamically affect the innovation activities. For the purpose, we consider adjustment costs for the investment process and allow firms to make a forward looking investment decision in the framework of an R&D-based endogenous growth model. Calibrating the model with U.S. data, we obtain new insights on how to design the corporate taxation policy. A dividend tax cut is not an effective policy instrument irrespective of how it is implemented. On the other hand, a capital gains tax cut and a rise of the R&D tax credit rate are an effective policy instrument irrespective of how they are implemented. However, the implementation lags of these tax changes worsen the effectiveness of them.

Suggested Citation

  • Kizuku Takao, 2014. "Dynamic effects of anticipated and temporary tax changes in a R&D-Based growth model," Discussion Papers in Economics and Business 14-10, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1410
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal policy; R&D; Economic growth;
    All these keywords.

    JEL classification:

    • 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
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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