Are Inventors Moving to Avoid High Taxes?
June 4, 2015
Inventors are a highly mobile group, according to data from the World Intellectual Property Organization. Some of the most successful inventors in U.S. history — Alexander Graham Bell, James L. Kraft, Ralph Baer and Samar Basu, were immigrants. What determines the migration patterns of inventors?
Two new National Bureau of Economic Research (NBER) studies find substantial evidence that tax rates have a significant influence on location decisions.
Taxation and the International Mobility of Inventors (NBER Working Paper No. 21024) examines the effects of taxation on the international mobility of inventors. The results suggest 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. 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.
The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists (NBER Working Paper No. 21120) examines the cross-state location decisions of top scientists in the United States. The findings regarding the individual income tax parallel those of the international study, but suggest a greater degree of tax sensitivity. The researchers estimate that New York's 2006 reduction of 0.65 percentage points in its top marginal income tax rate was associated with a net increase of 2.1 percent in the number of star scientists in the state. The authors also find business taxes, especially the corporate income tax and investment tax credits, have strong effects.
If inventors and scientists are important contributors to economic growth, then their migration in response to tax progressivity is a potential cost of such a policy.
Source: Les Picker, "Taxation and the Mobility of Inventors and Scientists," National Bureau of Economic Research.
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