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Growth-Inequality Trade-Offs in a Model with Public Sector R&D

Gerhard Glomm () and B Ravikumar

Canadian Journal of Economics, 1994, vol. 27, issue 2, 484-93

Abstract: In this paper, the authors present an infinite-horizon economy where the stock of technological knowledge enhances the productivity of all households. Technological knowledge depends upon public sector investments in R&D. These investments are financed by income taxes. Households in the authors' economy are differentiated by their initial capital endowments. The authors find that public policy affects the growth rate of per capita income but has no impact on income inequality. They endogenize the public-sector investments in R&D through majority voting. Under the endogenous policy, there is no trade-off between long-run growth and income inequality.

Date: 1994
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