Faculty Sponsor: Masami Imai
Isaac Stern
I’m an Economics and Mathematics student at Wesleyan University interested in how institutions, markets, and policy shape economic life. This summer, I worked as a Research Assistant for Professor Masami Imai to study how corporate tax rate cuts affected countries. This study was picked because it worked as a natural experiment. I’m always excited to use quantitative tools to study economically grounded questions.
Abstract: I study how declines in corporate income tax rates across countries affect innovation outcomes. Over the past 30 years corporate income taxes have fallen substantially across many different countries, offering an ideal natural experiment to study the outcomes of tax cuts across countries. I construct a country-year panel combining statutory corporate tax rates with innovation measures from the USPTO patent data, using patent application year and inventor-country assignment to measure innovation activity. The analysis then uses panel local projections to estimate how patent count and forward-citation-weighted patent outcomes change after tax cuts. A baseline specification measures the responses over a ten-year horizon with country and year fixed effects and unit specific trends. I find evidence that corporate tax cuts are followed by a delayed gradual increase in the number of patents registered in the United States from a specific country. Broader macroeconomic responses are less precise. The findings suggest that the international fall in corporate tax rates likely increased innovation activity through direct incentives, still these innovation results are not large enough to significantly affect noisy macroeconomic statistics.
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