Government-funded research, which is fueled by tax revenue, drives innovation, but higher rates of taxation can suppress invention. Akcigit et al. show that in the United States from 1940 to 2000, personal and corporate income taxes limited the number of patents at the state level, and inventors were less likely to locate in states with higher taxes. Higher corporate tax rates lowered the share of patenting by firms compared with individuals. Higher personal income tax rates lowered the likelihood of inventors having any patent and of producing patents that were highly cited or that produced high value for their firm.
Q. J. Econ. 10.1093/qje/qjab022 (2021).