Corporate taxes, growth and welfare in a Schumpeterian economy

Peretto, PF

2010-03-09T15:32:09Z

2007-11-01

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.

application/pdf

1095-7235

0022-0531

https://hdl.handle.net/10161/1939

en_US

Elsevier BV

Journal of Economic Theory

10.1016/j.jet.2006.11.005

Corporate taxes, growth and welfare in a Schumpeterian economy

Journal article

353

382

1

Duke

Economics

Trinity College of Arts & Sciences

Published

137