Working Paper: CEPR ID: DP14782
Authors: Ufuk Akcigit; Stefanie Stantcheva
Abstract: Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.
Keywords: taxation; innovation; growth; inventors; R&D; patents; productivity; entrepreneurship
JEL Codes: H20; O30; O38; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax policy (H29) | Innovation outcomes (O36) |
| 10% increase in personal income taxes (H29) | 6% reduction in patent production (O39) |
| 10% increase in personal income taxes (H29) | 6% reduction in patent citations (O34) |
| Tax changes (H29) | Innovation outcomes (O36) |
| Higher tax rates (H29) | Decreased residency of inventors in high-tax states (H73) |
| Higher tax rates (H29) | Impact on geographic distribution of talent (J61) |
| High concentration of innovation (O36) | Less responsiveness to taxation (H29) |
| Tax policy (H29) | Greater sensitivity of corporate inventors to tax changes (H32) |
| Tax policy (H29) | Sensitivity of individual inventors to tax changes (H32) |