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Taxation and Innovation in the Twentieth Century

Author

Listed:
  • Ufuk Akcigit
  • John Grigsby
  • Tom Nicholas
  • Stefanie Stantcheva

Abstract

This article 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 patented 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 other economic outcomes. Our analysis focuses on the effect 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 noncorporate sector. We propose several identification strategies, all of which yield consistent results. We find that higher taxes negatively affect 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

  • Ufuk Akcigit & John Grigsby & Tom Nicholas & Stefanie Stantcheva, 2022. "Taxation and Innovation in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 329-385.
    • Handle: RePEc:oup:qjecon:v:137:y:2022:i:1:p:329-385.
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    File URL: http://hdl.handle.net/10.1093/qje/qjab022
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    Cited by:

    1. KOUAKOU, Dorgyles C.M. & YEO, Kolotioloma I.H., 2023. "Can innovation reduce the size of the informal economy? Econometric evidence from 138 countries," MPRA Paper 119264, University Library of Munich, Germany.
    2. Bührle, Anna Theresa & Nicolay, Katharina & Spengel, Christoph & Wickel, Sophia, 2023. "From corporate tax competition to global cooperation? Trends, prospects and effects on German family businesses," ZEW Discussion Papers 23-027, ZEW - Leibniz Centre for European Economic Research.
    3. Marko Köthenbürger & Costanza Naguib & Christian Stettler & Michael Stimmelmayr, 2023. "Income Taxes and the Mobility of the Rich: Evidence from US and UK Households in Switzerland," CESifo Working Paper Series 10376, CESifo.
    4. Bührle, Theresa & Nicolay, Katharina & Spengel, Christoph & Wickel, Sophia, 2023. "Vom Steuerwettbewerb zur koordinierten globalen Unternehmensbesteuerung? Trends, Perspektiven und Belastungswirkungen," Studien, Stiftung Familienunternehmen / Foundation for Family Businesses, number 273177, June.
    5. Brendon McConnell, 2023. "What's Logs Got to do With it: On the Perils of log Dependent Variables and Difference-in-Differences," Papers 2308.00167, arXiv.org, revised Aug 2023.
    6. Gechert, Sebastian & Heimberger, Philipp, 2022. "Do corporate tax cuts boost economic growth?," European Economic Review, Elsevier, vol. 147(C).
    7. A. Fronzetti Colladon & B. Guardabascio & F. Venturini, 2023. "A new mapping of technological interdependence," Papers 2308.00014, arXiv.org, revised Mar 2024.
    8. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    9. Nattanicha Chairassamee & Oudom Hean & Parker Jabas, 2023. "The Financial Impact of State Tax Regimes on Local Economies in the U.S," JRFM, MDPI, vol. 16(10), pages 1-10, September.
    10. Pranvera Shehaj & Alfons J. Weichenrieder, 2024. "Corporate income tax, IP boxes and the location of R&D," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 203-242, February.
    11. Carneiro, Fernando Moraes & Turnovsky, Stephen J. & Tourinho, Octavio Augusto Fontes, 2022. "Economic growth and inequality tradeoffs under progressive taxation," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    12. Xu, Yong & Yuan, Ling & Khalfaoui, Rabeh & Radulescu, Magdalena & Mallek, Sabrine & Zhao, Xin, 2023. "Making technological innovation greener: Does firm digital transformation work?," Technological Forecasting and Social Change, Elsevier, vol. 197(C).
    13. López-Laborda Julio & Rodrigo Fernando, 2022. "Mobility of Top Income Taxpayers in Response to Regional Differences in Personal Taxes: Evidence from Spain," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 16(1), pages 152-169, January.
    14. Paolo Martellini & Todd Schoellman & Jason A. Sockin, 2022. "The Global Distribution of College Graduate Quality," Working Papers 791, Federal Reserve Bank of Minneapolis.
    15. Jarkko Harju & Toni Juuti & Tuomas Matikka, 2023. "Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance," Working Papers 17, Finnish Centre of Excellence in Tax Systems Research.

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