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Corporate Tax Cuts and Economic Growth

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  • Suzuki, Keishun

Abstract

Empirical evidence on the effect of corporate income tax on economic growth is mixed. This paper explores the ambiguous mechanism of corporate income tax by using a Schumpeterian growth model with heterogeneous innovators and endogenous market structure. Our main findings are as follows: (i) Corporate tax cuts do not necessarily enhance innovation. (ii) Corporate tax cuts are likely to have a positive growth effect when the research and development (R&D) productivity across firms is heterogeneous. (iii) R&D tax deduction increases the growth rate. (iv) Based on our calibration, the corporate tax cut in 2018 had a negative effect on economic growth and welfare in the U.S. economy.

Suggested Citation

  • Suzuki, Keishun, 2019. "Corporate Tax Cuts and Economic Growth," MPRA Paper 97829, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:97829
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate income tax; R&D tax deduction; Innovation; Heterogeneity; Endogenous entry; Market competition;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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