Taxation and Innovation

How do tax systems affect people’s decision on innovation? And how can tax policy be aligned with public expenditures to spur innovation? What can economists do if people erroneously perceive innovation as a zero-sum situation?

In our Innoscape Talk we asked these and other difficult questions to Prof. Stefanie Stantcheva, Professor of Political Economy at Harvard University and recipient of the 2025 John Bates Clark Medal. Her research offers new insights on the relationship between taxation and innovation which are of highest interest to governments when designing their fiscal policy.

Professor Stantcheva’s ability to discuss this theme and to answer all the questions is impressive: She explains the complex effects of taxation on innovation or the possibilities of public support of innovation in simple terms without, however, compromising too much on the precision of the argument. If you read the scientific articles published in the journals that may pop up on the screen during the Innoscape Talk, you will understand what we mean.

The conversation starts with the challenges that exist when undertaking conclusive academic research on the effects of taxation on inventors and firms. Results of the long-run analysis are discussed, including the effects of taxes on top inventors and the importance of also taking into account the expenditure side of the fiscal policy. In the second part, individual tax instruments, their mix and implementation in practice are briefly discussed. The conversation also touches upon the taxation of start-up firms. Prof. Stantcheva shares her thoughts on the OECD minimum (corporate) tax and on what countries may do, given that this tax exists (and not all countries apply them). Finally, the discussion on taxation and innovation relates to Stantcheva’s most recent research on zero-sum thinking and ends with a question on what economists can do to prevent that people may perceive positive-sum situations as zero sum.

This episode offers a research-based perspective on one of the central questions of modern economic policy: what should societies take into account when designing a tax system which is able to collect tax revenue for the government to finance government expenditures, but which does not hinder—or even encourage--innovation by risk-taking individuals and firms.

Prof. Stephanie Stantcheva draws on her pathbreaking academic contributions over the last 10 years, published in the leading journals in economics, such as the American Economic Review, Quarterly Journal of Economics, Econometrica, Journal of Political Economy and Review of Economic Studies. Her recent work explores people’s attitudes towards taxation, trade, immigration, climate change, and social mobility using large-scale Social Economics Surveys and Experiments. It was a pleasure to have Stephanie at the Center of Innovation Economics Basel (CIEB) of the Faculty of Business and Economics of the University of Basel in December 2025!