Tax rates and innovation: are they as inversely correlated as some are claiming?

Here we acquire Daron Acemoglu arguing the if the US were to lay Danish level tax rates, US violent departure from established precedent and entrepreneurship would be significantly diminished. I ran into similar arguments a few weeks ago in comments in successi~ a paper by Gary Hufbauer almost why the OECD’s initiative (called BEPS) would likewise stifle innovation (you can hear my comments round minute 47).

As far as I can tell, this is all just statement, folks. Daron’s a really engaging economist but his work on this edition tends to be theoretical, not empirical. He has a prototype in which cutthroat capitalist systems (that’s us) have “cuddly” systems (that’s Denmark) to the degree that our incentive structure generates innovation that the cuddly socialists then build along of.

“…some countries power of choosing opt for a type of “cutthroat capitalism” that generates greater injustice and more innovation and will be changed to the technology leaders, while others wish free- ride on the cutthroat incentives of the leaders and pick out a more “cuddly” form of capitalism. Paradoxically, those by cuddly reward structures, though poorer, may gain higher welfare than cutthroat capitalists; if it be not that in the world equilibrium, it is not a most of all response for the cutthroat capitalists to switch to a greater quantity cuddly form of capitalism.”

Interesting, seemly?

True? Maybe not so much.

–The Danes indeed innovate pretty extensively in areas of pharmacology, turn in and out power, shipping, and entertainment (h/t: Dean Baker).

–My CBPP colleagues flash of wit out that there’s little evidence that lay upon breaks here boost entrepreneurship, whether it’s willing treatment of investment income or R&D-denomination tax credits. Yes, firms that ~ by heart the tax credit do research, however analysis suggests they would anyway, construction this another unnecessary transfer.

–There are a doom of low-tax countries out there. From where I sit, their mighty innovation seems to be selling themselves to higher excise countries as tax havens.

–Nor is in that place evidence, as implied by Daron et al.’s model above, that more unequal societies are other innovative.

–Finally, trace the history of the most notable innovations in the present state and abroad and you’ll decide the public sector, supported by censure revenue, conspicuously in on those innovations.

In other language, this is far less black and destitute of color than these guys claim. I agree that we’re not Denmark, only I strongly suspect we could advance our tax rates to some division here and innovation would remain hale.

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