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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.
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FBBVA Lecture 2023 . The Importance of Modeling Income Taxes over Time: U.S. Reforms and Outcomes
Abstract The structure of taxes and their burden have undergone large and frequent changes over time. We provide a brief history of U.S. federal income tax reform since the 1960s, calculate effective federal income tax rates for each wave of the Panel Study of Income Dynamics, and discuss how effective taxation changed from 1969 to 2016. We show that most tax regimes are short-lived and that the variation in taxes over time and across groups is large. We also use an estimated dynamic model of couples and singles to show that the various tax regimes that we estimate imply very different labor market and saving behavior. These findings stress the importance of studying and modeling tax changes over time and across groups.
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- Award ID(s):
- 2044748
- PAR ID:
- 10478798
- Publisher / Repository:
- Oxford University Press
- Date Published:
- Journal Name:
- Journal of the European Economic Association
- Volume:
- 21
- Issue:
- 6
- ISSN:
- 1542-4766
- Format(s):
- Medium: X Size: p. 2237-2286
- Size(s):
- p. 2237-2286
- Sponsoring Org:
- National Science Foundation
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