Do Corporate Taxes Hinder Innovation?

Mukherjee, Abhiroop; Singh, Manpreet; Zaldokas, Alminas

doi:10.2139/ssrn.2365980

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Do Corporate Taxes Hinder Innovation?

Paris December 2015 Finance Meeting EUROFIDAI - AFFI

61 Pages Posted: 3 Nov 2014 Last revised: 16 Jan 2017

See all articles by Abhiroop Mukherjee

Abhiroop Mukherjee

Hong Kong University of Science & Technology (HKUST)

Hong Kong University of Science & Technology (HKUST) - Department of Finance; National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN); European Corporate Governance Institute (ECGI)

There are 2 versions of this paper

Date Written: May 25, 2015

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.

Keywords: Innovation, Patents, Research and Development, New Products, Corporate Taxes

JEL Classification: G30, G38, H25, O31

Suggested Citation: Suggested Citation

Mukherjee, Abhiroop and Singh, Manpreet and Zaldokas, Alminas, Do Corporate Taxes Hinder Innovation? (May 25, 2015). Paris December 2015 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=2365980 or http://dx.doi.org/10.2139/ssrn.2365980