Do Tax Cuts Produce more Einsteins? The Impacts of Financial Incentives Versus Exposure to Innovation on the Supply of Inventors. Raj Chetty, April 12, 2019, Paper, “Many countries provide financial incentives to spur innovation, ranging from tax incentives to research and development grants. In this paper, we study how such financial incentives affect individuals’ decisions to pursue careers in innovation. We first present empirical evidence on inventors’ career trajectories and income distributions using deidentified data on 1.2 million inventors from patent records linked to tax records in the United States. We find that the private returns to innovation are extremely skewed—with the top 1% of inventors collecting more than 22% of total inventors’ income—and are highly correlated with their social impact, as measured by citations. Inventors tend to have their most impactful innovations around age 40 and their incomes rise rapidly just before they have high-impact patents. We then build a stylized model of inventor career choice that matches these facts as well as recent evidence that childhood exposure to innovation plays a critical role in determining whether individuals become inventors. The model predicts that financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation and have essentially no impact on the decisions of star inventors, who matter most for aggregate innovation.Link