Taxation and Innovation in the 20th Century

By Ufuk Akcigit, J. Grigsby, T. Nicholas, Stefanie Stantcheva. 2018

128 citations recorded by the source corpus.

This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in RD and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; iii) event studies, synthetic cohort case studies, and a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity and quality of inventive activity and shift its location at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.

Subfields: Accounting, Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/3a95a0c0f104f56a343fbac95e59c3a573e3e205

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Citations in the corpus

Notching R&D Investment with Corporate Income Tax Cuts in China (2018, unknown): “…on matching and panel data methods, there is an emerging literature that explores the effects of quasi-experimental variation in tax incentives for R&D. Examples include Agrawal et al. (2019), Dechezlepretre et al. (2016), Einiö (2014), Guceri and Liu (2015), Akcigit et al. (2018), and Rao (2016).”
A toolkit of policies to promote innovation (2019, background): “Encouragingly, these more direct measures also seem to increase (with a lag) following tax changes (for US evidence, see Lucking 2018 and Akcigit et al. 2018; for the UK, see Dechezlepretre et al. 2016; for China, see Chen et al. 2017; and for Norway, see Bøler et al. 2015).”
Understanding Tax Policy: How Do People Reason? (2020, background): “On entrepreneurship, there is evidence that tax progressivity matters (Cullen and Gordon, 2006, 2007), as well as that outcomes from entrepreneurship (e.g., innovation) can be significantly affected by taxes (Akcigit et al., 2022; Akcigit and Stantcheva, 2020).”
Taxation and Migration: Evidence and Policy Implications (2019, background): “…(soccer) players where rich biographical information allows one to reconstruct migration patterns (Kleven, Landais, and Saez 2013), and inventors whose location decisions can be inferred from patent records (Akcigit, Baslandze, and Stantcheva 2016; Akcigit et al. 2018; Moretti and Wilson 2017).”