Paul L. Caron

Thursday, February 11, 2016

Hasen Presents Taxation And Innovation Today At Colorado

HasenDavid Hasen (Colorado) presents Taxation and Innovation at Colorado today as part of its Tax Policy Colloquium Series:

A number of tax rules have been enacted or proposed to promote innovation. The basic justification for these rules runs roughly as follows: innovative activity suffers from endemic market failure; market failure requires government regulation; tax rules are potential instruments of governmental regulation and therefore ought to be used to address the problem.

This paper argues that special tax rules for innovation generally are inappropriate. The basic circumstance giving rise to market failure in the innovation sector is the positive externality associated with information production. Special tax rules do not correct the externality; in fact, to the extent tax rules promote innovation, they exacerbate the externality. In place of special tax rules that promote innovation, policy makers should adopt rules that counteract disproportionately large tax-induced distortions in the innovation sector.

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