## Café Economics

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**Canonical URL:** [Café Economics](https://www.imf.org/-/media/files/publications/fandd/article/2025/09/cafe-economics.pdf)

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### Taxation and innovation
- Stantcheva’s research finds that taxation has a negative effect on innovation in the United States “all the way back to the 1930s,” reducing both the quantity of innovation (measured by the number of patents) and its location.
- States with higher personal—and especially higher corporate—income taxes “lost out to lower-income-tax states in terms of innovation.”
- High-amenity locations (measured by number of inventors already located there or research infrastructure) dampen the negative effects of higher taxes; examples cited include California and major patenting countries in western Europe and Canada.
- Superstar inventors are “highly mobile and sensitive to taxes,” and “migration effects are powerful for highly qualified inventors.”
- Policy-relevant conclusion: because taxes are needed to raise revenue, it is critical to “dampen their negative economic effects” by spending revenues on research and innovation infrastructure and amenities that make locations attractive so a state or country can “sustain higher taxes without losing all innovative capacity.”

### Surveys and behavioral measurement
- The Social Economics Lab uses surveys that probe “people’s reasoning, perceptions, beliefs, and attitudes” and typically include experimental variations where “some people will see one type of information while others will see another.”
- These surveys create “big data on something unusual: what’s happening in people’s minds,” allowing quantitative analysis of patterns and causal effects.
- Example application: a 20-country survey on major climate policies explored the trade-off between taxing pollution and banning it; while economic theory favors a tax as more efficient than a ban, survey respondents showed strong equity concerns and often preferred outright bans because they consider it unfair that “the rich can simply pay to pollute while others cannot.”

### Zero-sum thinking: prevalence and drivers
- Definition: zero-sum thinking is the belief that gains by one individual or group “must come at the expense of another,” implying a limited amount of good.
- Findings:
  - Zero-sum thinking is “much more prevalent among younger people in the US.”
  - The pattern is reversed in emerging market economies, where younger generations are “less zero-sum than the older ones,” reflecting higher growth and higher mobility.
  - Individual-level factors matter: if a person’s family experienced upward mobility, that person is “less likely to be zero-sum.”
  - Zero-sum thinking is “not a partisan issue” and is “evenly distributed across both sides of the political divide,” but it explains within-party variation in policy preferences.
- Policy preferences linked to zero-sum thinking: those who are more zero-sum favor more government intervention to protect groups perceived as suffering and support more redistribution driven by the belief that “the gains of the rich come at the expense of the poor.”

### Research recognition and background
- Stefanie Stantcheva received the 2025 John Bates Clark Medal, awarded for the most significant contributions to economic thought and knowledge by an economist under age 40.
- Stantcheva is the Nathaniel Ropes Professor of Political Economy at Harvard and founder of Harvard’s Social Economics Lab.
- Personal background cited: grew up in Bulgaria in the 1990s amid bouts of hyperinflation; later lived in France and East Germany.

### Implications for policy design
- Taxes are necessary to finance public spending; the policy task is to design tax systems and public spending so they:
  - Raise required revenue while minimizing negative effects on innovation and mobility.
  - Allocate revenues to research and innovation infrastructure and amenities that attract and retain inventors.
  - Recognize behavioral drivers (equity concerns, zero-sum beliefs) when communicating and designing policies—for example, understanding why some prefer bans over taxes despite efficiency arguments.
- Anticipated political effect: rising prevalence of zero-sum thinking among younger cohorts could increase demand for redistribution and protective interventions, shaping future policy debates even though zero-sum beliefs cut across partisan lines.

*Source: cafe-economics*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/cafe-economics.pdf_