What drives people to become innovators?
The top 1% of innovators earning more than 22% of total inventors’incomeFinancial incentives such as tax cuts have a limited impact as they only encourage people who are already innovating
Can tax cuts to top income earners drive innovation? New research from the US suggests no. In a National Bureau of Economic Research working paper, Alexander Bell from Harvard University and others analyse how individuals in the US became innovators. They find that incentives, such as income tax reductions for the highest income earners, have limited potential in increasing aggregate innovation. Rather, non-financial aspects such as childhood exposure to innovation and mentorship play a more important role in determining whether individuals become innovators.
Through an analysis of 1.2 million US-based inventors using patent records and tax records, the researchers also find that returns from innovation are extremely skewed. The top 1% of innovators earning more than 22% of total inventors’income. This top 1%, referred to by the authors as star inventors, also have the highest social impact, measured through patent citations. These star inventors, therefore, matter the most for the aggregate amount of innovation in the economy. These high-impact inventions usually come when the star inventors are in their mid-forties, well after they make initial career choices.
The authors conclude that star inventors emerge through greater exposure and training via mentorship programmes. Financial incentives such as tax cuts have a limited impact as they only encourage people who are already innovating, the authors argue. The study has important lessons for how India can generate more innovation and fuel economic growth. More than financial incentives, creating a conducive environment with mentors and training that develops a culture of innovation and research could be the best way for India to harness greater innovation.
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