Redistributive Innovation Policy, Inequality and Efficiency
Parantap Basu and
Yoseph Getachew ()
No 2017_02, CEGAP Working Papers from Durham University Business School
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.
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Working Paper: Redistributive Innovation Policy, Inequality and Efficiency (2017)
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