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
Professor Peretto focuses his research pursuits on industrial organization, technological change, and other aspects pertaining to the field of macroeconomics. His studies have explored a variety of factors, such as international trade, growth and innovation, market structure, corporate taxation, industrial organization, development and the environment, R&D, and more. Much of his analyses of his subjects tend to utilize the endogenous growth theories. He has been publishing his research papers