Edward Conard

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  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
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Upside of Inequality Oxford Unintended Consequences

AI Summary. Using US and European patent data, the authors estimate that top 1% "superstar" inventors' location choices respond to top tax rates, with an elasticity to the net-of-tax rate of about 0.03 for domestic inventors and about 1 for foreign inventors. Inventors at multinational firms are more likely to relocate for tax advantages.

Stefanie Stantcheva National Bureau of Economic Research
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Tax rates significantly influence the location of top 1% inventors, with foreign inventors showing greater responsiveness to tax differentials.

Do top tax rates influence where leading inventors choose to live?

Core argument: Using US and European Patent Office data, the authors estimate the elasticity of foreign superstar inventors to the net-of-tax rate at about 1, versus roughly 0.03 for domestic superstar inventors.

The study examines the impact of top tax rates on the international mobility of inventors, with a focus on "superstar" inventors who hold the most valuable patents. Data from the US and European Patent Offices reveal that top 1% inventors are significantly influenced by top tax rates when choosing their location. The elasticity of domestic superstar inventors to the net-of-tax rate is about 0.03, indicating limited sensitivity, whereas foreign superstar inventors show a higher elasticity of around 1, suggesting greater responsiveness to tax differentials. Inventors in multinational companies are more likely to relocate based on tax advantages, while those whose companies have substantial research activities in a specific country are less affected by local tax rates. This highlights the nuanced role of taxation in shaping the global distribution of top-tier inventive talent.

Takeaways by Macro Roundup® AI

  1. Using US and European Patent Office data, the authors estimate the elasticity of foreign superstar inventors to the net-of-tax rate at about 1, versus roughly 0.03 for domestic superstar inventors.
  2. Top 1% inventors, who hold the most valuable patents, are significantly influenced by top tax rates when choosing their location, the study finds.
  3. Inventors at multinational companies are more likely to relocate for tax advantages, while inventors whose employers conduct substantial research in a specific country are less affected by local tax rates.

“…This paper studies the effect of top tax rates on inventors' international mobility since 1977. We put special emphasis on “superstar” inventors, those with the most abundant and most valuable patents. We use panel data on inventors from the United States and European Patent Offices to track inventors' locations over time and combine it with international effective top tax rate data. We construct a detailed set of proxies for inventors' counterfactual incomes in each possible destination country including, among others, measures of patent quality and technological fit with each potential destination. Exploiting the differential impact of changes in the top tax rate on inventors of different qualities,we find that superstar top 1% inventors are significantly affected by top tax rates when deciding where to locate. The elasticity to the net-of-tax rate of the number of domestic superstar inventors is relatively small, around 0.03, while the elasticity of the number of foreign superstar inventors is around 1. Inventors who work in multinational companies are more likely to take advantage of tax differentials. On the other hand, if the company of an inventor has a higher share of its research activity in a given country, the inventor is less sensitive to the tax rate in that country….”

Ufuk Akcigit, Salomé Baslandze, Stefanie Stantcheva, "Taxation and the International Mobility of Inventors," National Bureau Of Economic Research, October 2015, https://www.nber.org/papers/w21024

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