A major obstacle to the study of tax changes on economic outcomes is lack of long-run data. To solve this problem, we assembled evidence over an entire century on state-level corporate and personal income tax rates, changes in federal tax rates, and US patents. Our research is grounded in a conceptual framework that allows both state-level (macro) and inventor-level (micro) estimates of the impact of taxes on innovation.
Our main finding at the macro level is that a one percent increase in the corporate net-of-tax rate leads to a 1.3 to 2.8 percent increase in innovation, whereas a one percent increase in the personal net-of-tax rate increases innovation by 0.8 to 1.8 percent. The elasticities are around half that magnitude at the micro level because the macro elasticity incorporates migration responses while the micro elasticity does not. Changes in state-level corporate taxes lead to roughly “zero-sum” outcomes at the macro-level as inventors move from one state to another, while changes in personal taxes induce both migratory and output responses.
Hunh.
How do you measure ‘innovation’, and what does a 1% increase look like? It seems to me that innovation covers everything from a new flavour of KitKat to a cure for cancer.
BTW the lead author is the marvellously named Ufuk Akcigit
CM
I dunno what innovation is, either, but you could just measure something like GDP and ignore using weird trendy labels, no?
As to 1% per annum, what you presumably actually see is that over (say) 20 years that GDP grew bigger (by about 20%) compared to a higher-taxed economy.
No, of course I haven’t read the article 🙂
As soon as I see the word macro, unless it’s a useful cash & carry, I lose interest. Branch of astrology.
Have I misunderstood (quite easy for this bear)? Is he saying that increasing taxes increases innovation? I would have thought that increasing innovation gives the state an excuse to help themselves to more, not the other way around.
T’other way around, although it’s badly stated. The more people get to keep the higher innovation.
Either way, I’m reminded of the old saw… “Economic forecasters only use decimal points to show that they have a sense of humour”.
There’s also the question, if economists are so clever why aren’t they doing something useful in the economy & making a packet?
Particularly applies to a cvnt in Ely.
If people don’t move their affairs in order to avoid tax, what are these tax havens that Murphy keeps moaning about?
He once said there was trillions sitting in tax havens – aren’t these trillions that are avoiding tax, evidence of………….tax having been avoided?
Surely his cognitive dissonance is not this strong?
“changes in the relative generosity of state-level tax incentives could shift the national distribution of innovation”
Be careful, boys: that’s almost an invitation to the feds to intervene under the law on inter-state commerce.
Has anyone looked at migration from the Land of Hills and Glens caused by its higher income taxes than England’s?
The vast majority don’t earn enough to get hit by higher taxes and any move to Englandshire would be offset by higher costs and reduced services comparative to Scotland (via the generosity of the Barnett formula)
Sure, Englandshire doesn’t have the demented porridge wogs of the SNP, but those loons are easily avoided by not watching broadcast TV (nowt but shite anyway) or reading the rags that pass themselves off as “newspapers” this side of the border.
John Galt, Perth, Scotland