Document Abstract

Do tax cuts produce more Einsteins? The impact of financial incentives vs. exposure to innovation on the supply of inventors (Centre for Economic Performance discussion paper no 1597)

Presents empirical evidence on how financial incentives, ranging from tax incentives to research and development grants, affect individuals’ decisions to pursue careers in innovation. Finds that the private returns to innovation are extremely skewed, with the top 1% of inventors collecting more than 22% of total inventors’ income. Notes that inventors tend to have their most impactful innovations around age 40 and their incomes rise rapidly just before they have high-impact patents. Develops a stylised model of inventor career choice which predicts that financial incentives have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation. Suggests that exposure to innovation, for example through mentoring programmes, could have a substantial impact on innovation.


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Bell, Alex et al
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Centre for Economic Performance (CEP)

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