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Taxation and Innovation in the 20th Century

Author

Listed:
  • Stantcheva, Stefanie
  • Akcigit, Ufuk
  • Grigsby, John
  • Nicholas, Tom
Abstract
This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We build a panel of the universe of inventors who patent since 1920, and a historical state-level corporate tax database with corporate tax rates and tax base information, which we link to existing data on state-level personal income taxes and on other economic outcomes. Our analysis focuses on the impact of personal and corporate income taxes on individual inventors (the micro level) and on states (the macro level), considering the quantity and quality of innovation, its location, and the share produced by the corporate rather than the non-corporate sector. We propose several identification strategies, all of which yield consistent results. We find that higher taxes negatively impact the quantity and the location of innovation, but not average innovation quality. The state-level elasticities to taxes are large and consistent with the aggregation of the individual level responses of innovation produced and cross-state mobility. Corporate taxes tend to especially affect corporate inventors' innovation production and cross-state mobility. Personal income taxes significantly affect the quantity of innovation overall and the mobility of inventors.

Suggested Citation

  • Stantcheva, Stefanie & Akcigit, Ufuk & Grigsby, John & Nicholas, Tom, 2018. "Taxation and Innovation in the 20th Century," CEPR Discussion Papers 13167, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13167
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    More about this item

    Keywords

    Innovation; Income taxes; Corporate taxation; Firms; Inventors; State taxation; Business taxation; R&d tax credits;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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