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Dynamically optimal R&D subsidization

Volker Grossmann (), Thomas Steger () and Timo Trimborn ()

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 3, 516-534

Abstract: This paper characterizes the optimal time path of R&D and capital subsidization. Starting from the steady state under current R&D subsidization in the US, the R&D subsidy should significantly jump upwards and then slightly decrease over time. There is a small loss in welfare, however, from immediately setting the R&D subsidy to its optimal long run level, compared to a time-varying R&D subsidy. The results do not depend on the financing scheme, namely lump sum taxation or factor income taxation. The optimal capital subsidy is time-varying under factor income taxation, but time-invariant when subsidies are financed by lump sum taxes.

Keywords: R&D subsidy; Transitional dynamics; Semi-endogenous growth; Welfare (search for similar items in EconPapers)
JEL-codes: H20 O30 O40 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Dynamically optimal R&D subsidization (2011) Downloads
Working Paper: Dynamically Optimal R&D Subsidization (2010) Downloads
Working Paper: Dynamically Optimal R\& D Subsidization (2010) Downloads
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