A0383
Title: Labor income tax shocks and corporate innovation
Authors: Daniel Henderson - University of Alabama (United States) [presenting]
Alexandra Soberon - Universidad de Cantabria (Spain)
Taining Wang - Capital University of Economics and Business (China)
Soroush Ghazi - University of Alabama (United States)
Abstract: Narrative identification and local projection are used to study the effect of income tax shocks on innovation measures of publicly traded firms in the US. To relax conditions on the way in which exogenous tax shocks impact our innovation measures, a semiparametric panel model is developed to estimate trending coefficient functions in the presence of interactive fixed effects. A kernel-based profile estimator is employed, and a local linear approach is used to filter the unobserved cross-sectional factors in the presence of mixed covariates (i.e., continuous and discrete). The relevant asymptotic theory is developed, and the estimators are shown to perform well in finite samples. In the application, on average, it is shown that a one percentage point cut in the average marginal tax rate increases firms' R\&D expenditure by about one per cent after four years, but that the impact is heterogenous with respect to whether or not the firm has a patent, the intensity of R\&D expenditure and the sign of the tax shock.
