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Effects of Patents versus R&D subsidies on Income Inequality

Angus Chu () and Guido Cozzi ()

Review of Economic Dynamics, 2018, vol. 29, 68-84

Abstract: This study explores the effects of patent protection and R&D subsidies on economic growth and income inequality using a Schumpeterian growth model with heterogeneous households. We find that although strengthening patent protection and raising R&D subsidies have the same macroeconomic effect of stimulating economic growth, they have drastically different microeconomic implications on income inequality. Specifically, strengthening patent protection increases income inequality whereas raising R&D subsidies decreases (increases) it if the quality step size is sufficiently small (large). An empirically realistic quality step size is smaller than the threshold, implying a negative effect of R&D subsidies on income inequality. We also calibrate the model to provide a quantitative analysis and find that strengthening patent protection causes a moderate increase in income inequality and a negligible increase in consumption inequality whereas raising R&D subsidies causes a relatively large decrease in both income inequality and consumption inequality. (Copyright: Elsevier)

Keywords: R&D subsidies; Patents; Income inequality; Economic growth (search for similar items in EconPapers)
JEL-codes: D30 O30 O40 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.red.2017.12.006

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