Do corporate taxes hinder innovation?

We exploit staggered changes in state-level corporate tax rates to show that an increase in taxes reduces future innovation. A variety of tests, including those based on policy discontinuity at contiguous counties straddling borders of politically similar states, show that local economic conditions...

Full description

Saved in:
Bibliographic Details
Published in:Journal of financial economics 2017-04, Vol.124 (1), p.195-221
Main Authors: Mukherjee, Abhiroop, Singh, Manpreet, Žaldokas, Alminas
Format: Article
Language:English
Subjects:
Corporate income tax
Corporate taxes
Discontinuity
Economic conditions
Incentives
Innovation
Innovations
New products
Patenting
R&D
Research & development
Research & development expenditures
Research and development
Risk taking
Tax increases
Tax rates
Taxation
Textual analysis
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We exploit staggered changes in state-level corporate tax rates to show that an increase in taxes reduces future innovation. A variety of tests, including those based on policy discontinuity at contiguous counties straddling borders of politically similar states, show that local economic conditions do not drive our results. The effect we document is consistent across the innovation spectrum: taxes affect not only patenting and R&D investment but also new product introductions, which we measure using textual analysis. Our empirical results are consistent with models that highlight the role of higher corporate taxes in reducing innovator incentives and discouraging risk-taking.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2017.01.004