The Effects of Taxes on Innovation: Theory and Empirical Evidence

2023, Book Chapter: "Income taxes are typically set to raise revenues and redistribute income at the lowest possible efficiency costs, which result from the distortions in in-dividual behaviors that taxes entail. Individuals can respond along many margins, such as labor supply, tax avoidance and evasion, and geographic mo-bility. But one margin that taxes may affect—innovation—is less frequently considered. Conceptually, taxes reduce the expected net returns to innova-tion inputs and can reduce innovation. Much like other margins of responses to taxes, this efficiency cost must be taken into account."