Working Paper: CEPR ID: DP10600
Authors: Enrico Moretti; Daniel Wilson
Abstract: Using data on the universe of U.S. patents filed between 1976 and 2010, we quantify how sensitive is migration by star scientist to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal and corporate taxes on star scientists? migration patterns. The long run elasticity of mobility relative to taxes is 1.6 for personal income taxes, 2.3 for state corporate income tax and -2.6 for the investment tax credit. The effect on mobility is small in the short run, and tends to grow over time. We find no evidence of pre-trends: Changes in mobility follow changes in taxes and do not to precede them. Consistent with their high income, star scientists migratory flows are sensitive to changes in the 99th percentile marginal tax rate, but are insensitive to changes in taxes for the median income. As expected, the effect of corporate income taxes is concentrated among private sector inventors: no effect is found on academic and government researchers. Moreover, corporate taxes only matter in states where the wage bill enters the state?s formula for apportioning multi-state income. No effect is found in states that apportion income based only on sales (in which case labor?s location has little or no effect on the tax bill). We also find no evidence that changes in state taxes are correlated with changes in the fortunes of local firms in the innovation sector in the years leading up to the tax change. Overall, we conclude that state taxes have significant effect of the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.
Keywords: economic geography; innovation; taxes
JEL Codes: H2; J01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1% decrease in after-tax income in destination state (H73) | 17% increase in number of star scientists relocating to destination state (J61) |
| personal income taxes (H24) | mobility of star scientists (J61) |
| corporate income taxes (G30) | influence on private sector scientists (J45) |
| corporate income taxes (G30) | no significant effects on academic or government researchers (I23) |
| corporate taxes relevant in states where wage bill affects income apportionment (H25) | influence on migration patterns (F22) |
| tax differentials (H29) | migratory behavior of high-skilled workforce (J61) |