Journal of Financial Economics Vol. 124 No. 1 2017

Do corporate taxes hinder innovation?

Abhiroop Mukherjee^1,2; Manpreet Singh³; Alminas Žaldokas^1,2

¹ Hong Kong University of Science and Technology · ² University of Hong Kong · ³ Georgia Institute of Technology

Abstract

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.

DOI

10.1016/j.jfineco.2017.01.004

Volume

124

Issue

1

Pages

195-221

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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