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Patents vs R&D Subsidies on Income Inequality

Angus Chu () and Guido Cozzi ()

MPRA Paper from University Library of Munich, Germany

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 heterogeneity in household asset holdings. 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 significant decrease in both income inequality and consumption inequality.

Keywords: R&D subsidies; patents; income inequality; economic growth (search for similar items in EconPapers)
JEL-codes: D3 O3 O4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gro, nep-ino and nep-ipr
Date: 2016-09
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