Innovation New Jersey
  • Home
  • Our Coalition
    • Contact Us
  • News
  • Resources
    • State Supports
    • Federal Supports
    • Higher Ed Supports
  • Join Us

Innovation News

Everything Innovation. Everything New Jersey.
Follow us and stay connected.

Microeconomic Insights: How Tax Rates Influence the Migration of Superstar Inventors

5/26/2017

0 Comments

 
​Washington, DC — The following was published on Microeconomic Insights on May 24.  The authors are Ufuk Akcigit (University of Chicago), Salome Baslandze (Einaudi Institute for Economics and Finance), Stefanie Stantcheva (Harvard University):
 
To what degree do higher taxes induce valuable and highly skilled individuals to relocate?  The fear is that raising taxes will lead to a “brain drain.”  Our research shows that the most innovative individual inventors are significantly affected by top tax rates when deciding where to live.
 
Additionally, if the average country decreased its top tax rate, it would attract many more foreign superstar inventors to the country.
​Superstar Inventors: The Key to a Country’s Innovation and Growth
 
We focus on understanding the effects of taxes on the location decisions of the most innovative inventors. How inventors respond to tax rates is especially important at a time when governments are forced to consider ways to raise more revenues as budget deficits grow.
 
Those in favor of higher taxes maintain that migration decisions are driven by other (possibly non-economic) factors and that high-skilled inventors would not respond much to an increase in tax rates.
 
Understanding the migration decisions of highly skilled individuals is important as research shows that high-skilled migration is beneficial for a receiving country’s economy and that immigrants disproportionately contribute to innovation (Kerr 2013).
 
For example, Alexander G. Bell, the inventor of the telephone, James L. Kraft, who patented a pasteurization technique and founded Krafts Food Inc., Ralph Baer, the inventor of a TV game unit that contributed to the expansion of the video gaming industry, or Charles Simonyi, a successful product developer at Microsoft were all very prolific inventors, but they had something else in common as well: they were all immigrants.
 
This is not very surprising given that migration rates increase in skill, and inventors are ranked very high in the skill distribution (Docquier and Marfouk 2006).
 
But not all inventors are the same: in fact, they differ a lot in their quality and innovativeness. How can we measure this? We can start with the economic value of an inventor’s patents. This is typically measured by the citations that a patent receives: the more a patent is cited, the higher its presumed value. (For a survey of the literature, see Abrams, Akcigit, and Popadak 2014.) 
 
Figure 1 shows how inventors are ranked by the number of citations their patents have received: while the median inventor has only 11 citations, the average top 1 percent inventor, or what we refer to as a “superstar inventor,” has hundreds of citations. Among top inventors are some highly successful migrants; in general, higher quality inventors are more mobile than lower quality inventors.
 
Effects of Top Tax Rates on Superstar Inventors’ Migration
While it is typically taken as given that physical capital, such as buildings or machinery, is highly mobile (an argument often used by policy makers to justify lower taxation on capital), much less is known about the mobility of human capital, i.e., how people and the labor force responds to taxation.
 
The media and the policy debate consist of a large amount of anecdotal evidence. For example, French actor Gerard Depardieu adopted Russian citizenship apparently in protest against France’s (effective) top tax rate increase.[1] While the exodus of such a celebrity captures the public imagination, any one such event gives no indication of a more systematic phenomenon. Rigorous evidence is scarce due to a lack of international panel data on patterns of individual migration patterns across countries and their likely causes.
 
There have been creative attempts to resolve the issue of missing data. Kleven, Landais, Saez, and Schultz (2014) study a Danish tax reform that temporarily reduced top tax rates on high-income foreigners. 
 
They find very strong effects of that policy on the inflow of migrants. In another recent paper, Kleven, Landais, and Saez (2013) show that high paid football players react to top tax rates when choosing which country to play in. However, since football players are probably especially young and mobile, their estimates are not easily transferable to other professions.
 
In our recent research (Akcigit, Baslandze, and Stantcheva 2016), we study the international migration responses of superstar inventors to top income tax rates for the period 1977-2003, using data from the European and U.S. patent offices, as well as from the Patent Cooperation Treaty (Miguelez and Fink 2013). Our focus is on migration across eight technologically advanced economies: Canada, France, Germany, Great Britain, Italy, Japan, Switzerland, and the United States.
 
To abstract from capital and corporate taxes as much as possible, we restrict our attention to inventors who are company employees and are not the owners (assignees) of their patents, so that their migration decision is simply an individual’s relocation.
 
We start by defining “superstar” inventors as those in the top 1 percent of the distribution of patent citations in a given year.   In some tests, we compare their decisions with those of inventors who are less well cited.
 
There are three key challenges to rigorously studying the effects of taxes on the migration of superstar inventors.
 
First, location choices are clearly also driven by factors other than taxes, such as a common language, distance to one’s home country, and career concerns (e.g., how many people work in your technological field). Thanks to our data, we can account for these other factors by including detailed controls in the analysis.
 
Second, inventors may earn different pretax wages in each possible destination country, a counterfactual we cannot observe and have to control for through a detailed set of proxy measures.
 
Finally, there may be other policy changes or economic factors that change in a given country at the same time as top tax rates change, e.g., business-friendly policies or innovation-fostering measures. If that is the case, we may falsely attribute migration effects to top tax rates, when they may, in fact, be driven by other policies.
 
To address the third challenge, we compare the behavior of superstar inventors with that of other inventors who are equally affected by other policy changes and economic factors but not as affected by tax changes.
 
Using outside evidence based on administrative data and survey data, we show in the paper that superstar inventors have a large part of their incomes in the top tax bracket and, hence, are strongly subject to top tax rates. Inventors of lower quality are much less likely to be in the top bracket or at least have a much smaller fraction of their income subject to the top rate.
 
Thus, we would expect the superstar inventors to be the ones most significantly affected by changes in the top tax rate. Lower quality inventors can then serve as a “control group” that is subject to other innovation policies and economic forces, but is little affected by the top tax rate.
 
We conduct our analysis at both the macroeconomic level and the individual inventor level.
 
For the remainder of the paper, click here.
 
 
 
 
0 Comments



Leave a Reply.

    Do not miss a single innovative moment and sign up for our newsletter!
    Weekly updates


    Categories

    All
    3D Printing
    Academia
    Acquisitions
    Aerospace
    Agriculture
    AIDS
    Algae
    Alumni
    Animals
    Architecture
    Astrophysics
    Autism
    Awards
    Big Data
    Bioethics
    Biofuel
    Biomedical
    BioNJ
    Bioterrorism
    Bit Coins
    Brain Health
    Business
    Camden
    Cancer
    CCollege
    Cellular
    Centenary
    Chemistry
    ChooseNJ
    Climate Change
    Clinical Trials
    Cloud Tech
    Collaboration
    Computing
    Congress
    Coriell
    Council On Innovation
    Crowdfunding
    Cybersecurity
    DARPA
    Defense
    Degree
    Dementia
    Dental Health
    DOC
    DOD
    DOE
    Drew
    Drones
    Drug Creation
    Einstein's Alley
    Electricity
    Energy
    Engineering
    Entrepreneurship
    Environmental
    FAA
    Fairleigh Dickinson
    FDA
    Federal Budget
    Federal Government
    Federal Labs
    Federal Program
    Finance
    Food Science
    Fort Monmouth
    Fuel Cells
    Funding
    Genome
    Geography
    Geology
    Global Competition
    Google
    Governor Christie
    Grant
    Hackensack
    HackensackUMC
    Healthcare
    Health Care
    HHS
    HINJ
    Hospitals
    Immigration
    Incubator
    Infrastructure
    International
    Internet
    Investor
    IoT
    IP
    IT
    Jobs
    Johnson & Johnson
    K-12
    Kean
    Kessler
    Legislation
    Logistics
    Manufacturing
    Medical Devices
    Med School
    Mental Health
    Mentor
    Microorganisms
    Molecular Biology
    Montclair
    NAS
    Neuroscience
    Newark
    New Jersey
    NIFA
    NIH
    NIST
    NJBDA
    NJBIA
    NJ Chemistry Council
    NJCU
    NJDOLWD
    NJEDA
    NJEDge
    NJHF
    NJII
    NJIT
    NJMEP
    NJPAC
    NJPRO
    NJTC
    Nonprofit
    NSF
    OpEd
    Open Data
    OSHE
    OSTP
    Parasite
    Patents
    Paterson
    Patients
    Perth Amboy
    Pharma
    POTUS
    PPPL
    Princeton
    Prosthetics
    Ranking
    Rare Disease
    R&D Council
    Report
    Resiliency
    Rider
    Robotics
    Rowan
    Rutgers
    SBA
    Seton Hall
    Siemens
    Smart Car
    Smart Cities
    Software
    Solar
    Space
    SSTI
    Startup
    State Government
    STEM
    Stevens
    Stockton
    Subatomic
    Supports
    Sustainability
    Taxes
    TCNJ
    Teachers
    Telecom
    Therapy
    Thermodynamics
    Transportation
    Undergraduate
    USEDA
    Verizon
    Video Game
    Virtual Reality
    Water
    WHO
    William Paterson
    Women In STEM
    Workforce Development

Home   Coalition   News   Resources   Events   Join Us
Picture
Innovation New Jersey Coalition
222 West State Street
Suite 302
Trenton, NJ 08608
732-729-9619