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Dynamically Optimal R&D Subsidization

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  • Volker Grossmann
  • Thomas Steger
  • Timo Trimborn

Abstract

Previous research on optimal R&D subsidies has focussed on the long run. This paper characterizes the optimal time path of R&D subsidization in a semi-endogenous growth model, by exploiting a recently developed numerical method. Starting from the steady state under current R&D subsidization in the US, the R&D subsidy should significantly jump upwards and then slightly decrease over time. There is a negligible loss in welfare, however, from immediately setting the R&D subsidy to its optimal long run level, compared to the case where the dynamically optimal policy is implemented.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-08/cesifo1_wp3153.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3153.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3153

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Keywords: R&D subsidy; transitional dynamics; semi-endogenous growth; welfare;

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Cited by:
  1. May Elsayyad & Kai A. Konrad, 2011. "Fighting Multiple Tax Havens," Working Papers fighting_multiple_tax_hav, Max Planck Institute for Tax Law and Public Finance.
  2. Volker Grossmann & Thomas M. Steger & Timo Trimborn, 2012. "The Macroeconomics of TANSTAAFL," DEGIT Conference Papers c017_041, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Grossmann, Volker & Steger, Thomas M., 2013. "Optimal growth policy: The role of skill heterogeneity," Economics Letters, Elsevier, vol. 119(2), pages 162-164.
  4. Prettner, Klaus & Werner, Katharina, 2014. "Human capital, basic research, and applied research: Three dimensions of human knowledge and their differential growth effects," Center for European, Governance and Economic Development Research Discussion Papers 186, University of Goettingen, Department of Economics.

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