Taxation and Innovation in the 20th Century

125 Pages Posted: 17 Sep 2018 Last revised: 5 Apr 2021

See all articles by Ufuk Akcigit

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

John Grigsby

University of Chicago

Tom Nicholas

Harvard University - Entrepreneurial Management Unit

Stefanie Stantcheva

Harvard University - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 2018

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

Akcigit, Ufuk and Grigsby, John and Nicholas, Tom and Stantcheva, Stefanie, Taxation and Innovation in the 20th Century (September 2018). NBER Working Paper No. w24982, Available at SSRN: https://ssrn.com/abstract=3246779

Ufuk Akcigit (Contact Author)

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

HOME PAGE: http://www.ufukakcigit.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Center for Economic and Policy Research (CEPR) ( email )

London
United Kingdom

John Grigsby

University of Chicago ( email )

Tom Nicholas

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

Stefanie Stantcheva

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

HOME PAGE: http://scholar.harvard.edu/stantcheva/home

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