Why lowering corporate taxes can boost productivity
New research offers valuable insights into how tax policies can be leveraged to promote innovation and drive economic growth
In the latest episode of The Why Podcast, Katie Pisa met with Paolo Surico, Professor of Economics at London Business School, and Joseba Martinez, Assistant Professor of Economics at London Business School to discuss their research titled “Corporate taxes, innovation and productivity”.
By using a narrative identification of tax changes in the US over the period 1950-2019, the authors found that a temporary cut in corporate income tax rates led to a long-lasting increase in innovation and productivity.
Their findings offer valuable insights into how tax policies can be leveraged to promote innovation and drive economic growth. The two spent two and a half years working on this research after evidence showed them the remarkable impact that government corporate tax cuts (even temporary) can have on productivity.
Discover fresh perspectives and research insights from LBS
“A temporary cut in corporate income tax rates led to a long-lasting increase in innovation and productivity”
The overall message of their research is that governments need to better design the corporate tax system such that the corporations that pay the most tax are the least innovative.
Joseba Martinez, Paolo Surico and Katie Pisa
Some key takeaways from this chat include:
Tax is necessary but how can it be tweaked to encourage innovators?
- How R&D reduces tax and the impact it has on productivity
- How governments need to consider which companies should receive tax cuts
- Key historical moments when innovation was boosted
- How the UK, where the new government says it aims to foster growth, might fare if it considers such corporate tax cuts
- What a second Trump presidency looks like in regards to taxes
- The impact of personal tax cuts doesn’t always have the same impact as corporate tax cuts
Listen to the whole podcast here:
Read the full paper here: https://www.corptaxinnovation.pdf
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