Can Corporate Income Tax Cuts Stimulate Innovation? Academic Article uri icon

abstract

  • We hypothesize that corporate income taxes distort firms incentives to innovate by reducing their pledgeable income. Using a differences-in-differences methodology, we document that large corporate income tax cuts boost corporate innovation. We find a similar but opposite effect for tax increases. Most of the change in innovation occurs 2 or more years after the tax change, and theres no effect before the tax change. Exploring the mechanisms, we show that tax cuts have a stronger impact on innovation for firms with weaker governance, greater financial constraints, fewer tangible assets, smaller patent stock, and a greater degree of tax avoidance.

published proceedings

  • Journal of Financial and Quantitative Analysis

altmetric score

  • 24.75

author list (cited authors)

  • Atanassov, J., & Liu, X.

citation count

  • 56

complete list of authors

  • Atanassov, Julian||Liu, Xiaoding

publication date

  • August 2020