Akcigit, Ufuk, and Stefanie Stantcheva (eds), ‘Taxation and Innovation: What Do We Know?’, Innovation and Public Policy (Chicago, IL, 2022; online edn, Chicago Scholarship Online, 22 Sept. 2022), https://doi.org/10.7208/chicago/9780226805597.003.0007, accessed 17 Dec. 2023.

1. Importance of Innovation: Innovation is crucial for technological progress and economic growth. States in the U.S. with more innovations experienced faster growth between 1900 and 2000. Innovation also improves social mobility and overall well-being.
2. Types of Tax Policies:
   • General Tax Policies: These include personal income taxes, corporate income taxes, and education subsidies.
   • Targeted Tax Policies: These are specific to innovation, such as R&D tax credits, start-up subsidies, research subsidies for specific types of research and R&D, and location-specific incentives for firms and inventors.
3. Impact of General Taxes:
   • On Individual Inventors: Personal income taxes directly affect the earnings of inventors. For self-employed inventors, corporate taxes become relevant if they incorporate their ventures.
   • On Firms: Corporate income taxes influence firms’ decisions on R&D investments and hiring of researchers. The impact depends on the expensability of research inputs and fixed costs.
4. Impact of Targeted Tax Policies:
   • These policies influence a broad range of firm decisions and can alter the financial incentives for innovation. They can encourage the entry of startups, direct innovation towards specific areas, and attract firms and inventors to certain regions.
5. Elasticities in Tax Policy:
   • Behavioral Elasticities: These measure how firms and inventors adjust their actions in response to tax policies, like the decision to innovate or where to locate.
   • Technological Elasticities: These capture how innovation outputs (quantity and quality) respond to actions influenced by tax policies. The range varies from completely inelastic (e.g., Newton’s apple falling) to highly responsive (e.g., more chemical tests leading to more discoveries).
6. Empirical Findings on Taxes and Innovation: Higher taxes negatively affect the quantity and location of innovation, but not the quality. Personal income taxes significantly impact the number of patents and high-value patents, while corporate taxes mainly affect corporate inventors.
7. Dynamic Effects and Mobility: Innovation responses to tax changes begin one year after a tax change and increase over the next three years. Inventors move in response to state personal income tax rates.
8. International Mobility of Inventors: Superstar inventors are influenced by top tax rates. For example, the elasticity of the number of domestic superstar inventors to the net-of-tax rate is around 0.03, while for foreign superstar inventors, it’s around 1.
   • Understanding Elasticities: Elasticity here refers to how sensitive inventors’ decisions (like where to work or live) are to changes in tax rates. A higher elasticity means inventors are more likely to change their behavior in response to tax changes.
9. Agglomeration Effects: Agglomeration refers to the concentration of innovators in specific areas. The study finds that inventors are less sensitive to taxes in states with more innovation activity in their field, indicating the importance of these innovation clusters.
10. Decline in Business Dynamism: Indicators of this decline are that market concentration, average profits, and markups have risen; the labor share has decreased; the labor productivity gap between frontier and laggard firms has increased; entry rates have declined, as has the share of young firms; job reallocation has slowed down; the dispersion of firm growth has increased; and the rise in market concentration and the fall in labor share are positively correlated.
11. Role of Venture Capitalists (VCs): VCs play a crucial role in screening, monitoring, and financing startups. They contribute significantly to innovation, especially when matched with experienced VCs. Tax policies that favor VC-funded firms can boost innovation.
12. Challenges of Asymmetric Information: It’s difficult to differentiate between productive and nonproductive firms due to private information about a firm’s quality, which is hard for outside parties, including the government, to assess.  Government could overcome this by operating more like VCs.
13. Interplay Between Education and Innovation Policy: Education policies create a skilled workforce essential for innovation. The effectiveness of R&D policies is enhanced when combined with strong education policies, particularly in societies with financial barriers to education.
14. Carbon Taxes and Research Subsidies: Carbon taxes are initially costly but effective over time as clean technologies become more efficient. Research subsidies are more effective in the early stages of developing clean technologies. The optimal policy mix involves initially focusing on research subsidies, which decline over time, and backloading carbon taxes.