Implications of Tax Policy for Innovation and Aggregate Productivity Growth

Ferraro, Domenico; Ghazi, Soroush; Peretto, Pietro F.

doi:10.2139/ssrn.2966933

“…They focus on the extent to which the intensity of incumbent firms' investments in innovation scales with their size, whereas we focus on characterizing the dynamics of aggregate productivity and welfare in response to changes in innovation policy. Ferraro et al (2017) present numerical results on the aggregate impact of various tax policies in an endogenous growth model in which incumbent firms (which are identical in equilibrium) invest to improve their own products and entering firms invest to add new products. 4 Our framework does not nest some recent models discussed in the literature, including Lentz and Mortensen (2008), Akcigit and Kerr (2010), the second model considered in Luttmer (2011), Lentz and Mortensen (2016), and Peters (2016).…”

Section: Introductionmentioning

confidence: 99%

Aggregate Implications of Innovation Policy

Atkeson

¹

,

Burstein²

2018

Preprint

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We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a model that nests several of the canonical models in the literature. We isolate two statistics, the impact elasticity of aggregate productivity growth with respect to an increase in aggregate innovative investment and the degree of intertemporal knowledge spillovers in research, that play a key role in shaping the model's predicted dynamic response of aggregate productivity, output, and welfare to a policy-induced change in the innovation intensity of the economy. Given estimates of these statistics, we find that there is only modest scope for increasing aggregate productivity and output over a 20-year horizon with uniform subsidies to firms' investments in innovation of a reasonable magnitude, but the welfare gains from such a subsidy may be substantial.

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“…They focus on the extent to which the intensity of incumbent firms' investments in innovation scales with their size, whereas we focus on characterizing the dynamics of aggregate productivity and welfare in response to changes in innovation policy. Ferraro et al (2017) present numerical results on the aggregate impact of various tax policies in an endogenous growth model in which incumbent firms (which are identical in equilibrium) invest to improve their own products and entering firms invest to add new products. 4 Our framework does not nest some recent models discussed in the literature, including Lentz and Mortensen (2008), Akcigit and Kerr (2018), the second model considered in Luttmer (2011), Lentz and Mortensen (2016), and Peters (2016).…”

Section: Introductionmentioning

confidence: 99%

Aggregate Implications of Innovation Policy

Atkeson

¹

,

Burstein

²

2019

Journal of Political Economy

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We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a model that nests several of the canonical models in the literature. We isolate two statistics, the impact elasticity of aggregate productivity growth with respect to an increase in aggregate innovative investment and the degree of intertemporal knowledge spillovers in research, that play a key role in shaping the model's predicted dynamic response of aggregate productivity, output, and welfare to a policy-induced change in the innovation intensity of the economy. Given estimates of these statistics, we find that there is only modest scope for increasing aggregate productivity and output over a 20-year horizon with uniform subsidies to firms' investments in innovation of a reasonable magnitude, but the welfare gains from such a subsidy may be substantial.

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“…3 For examples of analyses of the impact of tax policies on aggregate productivity through their impact on firms' investments in innovation, see McGrattan and Prescott (2005), Peretto (2007), Acemoglu (2009), Jaimovich and Rebelo (2017), and Ferraro et al (2017). Karahan et al (2016) study the impact of changes in the growth rate of the labor force on firm entry, and Comin and Gertler (2006), De Loecker and Eeckhout (2017) and Edmond et al (2018) study the macroeconomic implications of changes in markups.…”

Section: Introductionmentioning

confidence: 99%

Transitional Dynamics in Aggregate Models of Innovative Investment

Atkeson

¹

,

Burstein

²

,

Chatzikonstantinou

³

2019

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What quantitative lessons can we learn from models of endogenous technical change through innovative investments by firms for the impact of changes in the economic environment on the dynamics of aggregate productivity in the short, medium, and long run? We present a unifying model that nests several canonical models in the literature and characterize both their positive implications for the transitional dynamics of aggregate productivity and their welfare implications in terms of two sufficient statistics. We review the current state of measurement of these two sufficient statistics and discuss the range of positive and normative quantitative implications of our model for a wide array of counterfactual experiments, including the link between a decline in the entry rate of new firms and a slowdown in the growth of aggregate productivity. We conclude with a summary of the lessons learned from our analysis to help direct future research aimed at building models of endogenous productivity growth that are useful for quantitative analysis.

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Implications of Tax Policy for Innovation and Aggregate Productivity Growth

Cited by 7 publications

References 14 publications

Aggregate Implications of Innovation Policy

Aggregate Implications of Innovation Policy

Aggregate Implications of Innovation Policy

Transitional Dynamics in Aggregate Models of Innovative Investment

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