Discussion: (1 comment)
Comments are closed.
A public policy blog from AEI
Frustratingly for some, taxes keep being important factor in the decision-making process of human beings. In my new The Week column, I give a bit of aid and comfort to those states cutting top tax rates but getting poor immediate results:
Whatever their fiscal impact, the Kansas tax cuts may yet earn some significant economic benefits. A new paper by Enrico Moretti and Daniel Wilson, “The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists,” finds that state taxes “have a significant effect on the geographical location of star scientists and possibly other highly skilled workers.” They calculate, for instance, the effect of New York cutting its marginal tax rate on the top 1 percent of earners in 2006 was “12 fewer star scientists moving away and 12 more stars moving into New York, for a net increase of 24 stars, a 2.1 percent increase.” Now, that may not sound like much bang for the buck, but it only took the arrival of two pretty smart guys, Bill Gates and Paul Allen, to launch Seattle’s tech boom. Likewise, while the Reagan tax cuts may have not boosted U.S. productivity in the 1980s, a case can be made that changing incentives played a key role in the 1990s tech boom. The lesson from Kansas should not be that we ought never, ever cut taxes for rich people or business.
As it happens, a new note from the National Bureau of Economic Research mentions the above study and this one too:
In “Taxation and the International Mobility of Inventors” (NBER Working Paper No. 21024), authors Ufuk Akcigit,Salomé Baslandze, and Stefanie Stantcheva study the effects of taxation on the international mobility of inventors. They put particular emphasis on the location decisions of individuals who have the most patents or the most valuable patents. The authors employ panel data on all inventors who received a patent from U.S. or European patent offices to track international mobility since the 1970s. A very large fraction of worldwide patent filings involve at least one of these two patent offices, so the sample includes most inventors. The authors combine data on where inventors reside, gleaned from the patent filings, with information on the top effective marginal tax rate in each country in each year, to study how taxes affect location choices.
Their results suggest that a 10 percentage-point decrease in a nation’s top tax rates is associated with an increase, on average, of about 1 percent in the number of domestic superstar inventors. The effect is more muted for less productive inventors. A decline in the top tax rate is associated with an even larger effect on the number of foreign inventors who reside in a country: averaged across the eight nations studied, a 10 percentage-point drop is associated with a 38 percent increase in this group.
Inventors who have worked for multinational firms appear to be more likely to respond to tax differentials, possibly because working for a multinational makes a move abroad easier and grants the inventor international exposure. On the other hand, inventors whose companies’ research activities are highly concentrated in a given country are less sensitive to tax differentials.
Low US marginal tax rates would seem to give America a competitive advantage in drawing top talent globally — though less of one than a few years ago. And poor France …
Comments are closed.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2017 American Enterprise Institute