Why the rich should like R&D less

Guido Cozzi

Working Papers from Business School - Economics, University of Glasgow

Abstract: It is well known that research and development (R&D) is an important engine for economic growth. Also, initial wealth inequality and subsequent economic growth are well known to be related. This paper links inequality and R&D-driven growth. It shows that in a class of economies where R&D is the main engine for growth, different wealth groups differ in their desire for aggregate innovative effort: the richer the individual the lower her ideal aggregate R&D investment. In so far as rich shareholders are able to pursue their common interests in avoiding to invest too much in R&D compared to their ideal level, a pro-labour government able to impose distortionary progressive taxation, by minimizing the difference between the rich and the poor can maximize growth. Such predicted negative relationship between desired R&D and dynastic wealth is robust to any subsidy rate lower than 100%.

Keywords: R&D and Growth; Innovation; Inequality and Growth; Redistribution and Growth (search for similar items in EconPapers)
JEL-codes: O31 O32 O38 P16 P48 (search for similar items in EconPapers)
Date: 2008-06, Revised 2008-08
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Working Paper: Why the Rich Should Like R&D Less (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2008_18

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