Corporate taxes, growth and welfare in a Schumpeterian economy
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I take a new look at the long-run implications of taxation through the lens of modern Schumpeterian growth theory. I focus on the latest vintage of models that sterilize the scale effect through a process of product proliferation that fragments the aggregate market into submarkets whose size does not increase with the size of the workforce. I show that the following interventions raise welfare: (a) granting full expensibility of R&D to incorporated firms; (b) eliminating the corporate income tax and/or the capital gains tax; (c) reducing taxes on labor and/or consumption. What makes these results remarkable is that in all three cases the endogenous increase in the tax on dividends necessary to balance the budget has a positive effect on growth. A general implication of my analysis is that corporate taxation plays a special role in Schumpeterian economies and provides novel insights on how to design welfare-enhancing tax reforms. © 2007 Elsevier Inc. All rights reserved.
Published Version (Please cite this version)10.1016/j.jet.2006.11.005
Publication InfoPeretto, PF (2007). Corporate taxes, growth and welfare in a Schumpeterian economy. Journal of Economic Theory, 137(1). pp. 353-382. 10.1016/j.jet.2006.11.005. Retrieved from https://hdl.handle.net/10161/1939.
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Professor of Economics
Peretto is a macroeconomist who studies the sources and effects of technological change mainly using endogenous growth theory. With this focus, he has studied international trade, growth and innovation, market structure, corporate taxation, industrial organization, development and the environment, R&D, demography, and more. He has been publishing his research for nearly three decades and has had his work appear in books and leading academic journals. He is Associate Editor of the Journal of