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Redistributive Innovation Policy, Inequality and Efficiency

Parantap Basu and Yoseph Getachew ()

No 2017_02, CEGAP Working Papers from Durham University Business School

Abstract: Using a heterogenous-agent growth model with in-house R&D and incomplete capital markets, we examine the efficiency and distributional e¤ects of alternative public R&D policies that target high-tech and low-tech sectors. We nd that such policies have important implication for efficiency, inequality and social mobility. A regressive public R&D investment nanced by income tax could boost growth and welfare via a positive e¤ect on individual savings and e¤ort. However, it could also discourage them via its effect on the efficiency inequality trade off. The relationship between public R&D spending and welfare is therefore hump shaped admitting an optimal degree of regressivity in public R&D spending. A case for optimal progressive public R&D investment, however, can be made with a properly designed R&D policy that combines consumption tax and investment subsidy policies.

New Economics Papers: this item is included in nep-dge, nep-ino and nep-pbe
Date: 2017-02
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