Capital Income Tax, R&D Technology, and Economic Growth

Yohei Tenryu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper shows that, in a R&D-based growth model in which vertical and horizontal innovations occur simultaneously, increasing the capital income tax leads to faster the productivity growth and a welfare growth. For this result to hold, the production function for both vertical and horizontal innovations must have constant marginal labor productivity. Furthermore, the paper investigates whether subsidies for both R&D accelerate or deteriorate economic growth and welfare. The government gives more subsidies to the vertical sector with more productivity, leading to economic growth and welfare increases. Conversely, when the government provides subsidies that exceed the threshold ratio in low-productivity sectors, economic growth and welfare are impeded.

Keywords: Endogenous growth; Capital income tax; Vertical innovation; Horizontal Innovation; Scale effect; Subsidy. (search for similar items in EconPapers)
JEL-codes: H20 J22 O31 O40 (search for similar items in EconPapers)
Date: 2017-04-22, Revised 2025-02-27
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https://mpra.ub.uni-muenchen.de/123794/1/MPRA_paper_78706.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/123794/10/Tenryu%282025%29.pdf original version (application/pdf)

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