Corporate taxes, growth and welfare in a Schumpeterian economy

Journal Article (Journal Article)

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.

Full Text

Duke Authors

Cited Authors

  • Peretto, PF

Published Date

  • November 1, 2007

Published In

Volume / Issue

  • 137 / 1

Start / End Page

  • 353 - 382

Electronic International Standard Serial Number (EISSN)

  • 1095-7235

International Standard Serial Number (ISSN)

  • 0022-0531

Digital Object Identifier (DOI)

  • 10.1016/j.jet.2006.11.005

Citation Source

  • Scopus