Redistributive Innovation Policy, Inequality and Efficiency

Parantap Basu and Yoseph Getachew

No 201768, Working Papers from University of Pretoria, Department of Economics

Abstract: Using a heterogenous-agent growth model with in-house R&D and incomplete capital markets, we examine the efficiency and distributional effects of alternative public R&D policies that target high-tech and low-tech sectors. We find that such policies have important implication for efficiency, inequality and social mobility. A regressive public R&D investment financed by income tax could boost growth and welfare via a positive effect on individual savings and effort. 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.

Keywords: Public R&D investment; inequality dynamics; social mobility; growth; welfare (search for similar items in EconPapers)
JEL-codes: D31 E13 H4 O41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-10
New Economics Papers: this item is included in nep-ino and nep-pbe
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Redistributive innovation policy, inequality, and efficiency (2020)
Working Paper: Redistributive Innovation Policy, Inequality and Efficiency (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201768

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