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Why the rich should like R&D less

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Author Info
Guido Cozzi

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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%.

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Publisher Info
Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2008_18.

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Date of creation: Jun 2008
Date of revision: Aug 2008
Handle: RePEc:gla:glaewp:2008_18

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Postal: Adam Smith Building, University of Glasgow, Glasgow G12 8RT
Phone: 0141 330 4618
Fax: 0141 330 4940
Web page: http://www.gla.ac.uk/departments/economics/
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Related research
Keywords: R&D and Growth; Innovation; Inequality and Growth; Redistribution and Growth;

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
P48 - Economic Systems - - Other Economic Systems - - - Other Economic Systems: Political Economy; Legal Institutions; Property Rights

References listed on IDEAS
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  1. Lutz G. Arnold, 2006. "The Dynamics of the Jones R&D Growth Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 143-152, January. [Downloadable!] (restricted)
  2. Jakob Madsen, 2008. "Semi-endogenous versus Schumpeterian growth models: testing the knowledge production function using international data," Journal of Economic Growth, Springer, vol. 13(1), pages 1-26, March. [Downloadable!] (restricted)
    Other versions:
  3. Talmain, G. & Chou, C.F., 1996. "Redistribution and Growth; Pareto Improvements," UBC Departmental Archives 96-03, UBC Department of Economics.
  4. Reto Foellmi & Josef Zweimüller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 941-960, October. [Downloadable!] (restricted)
    Other versions:
  5. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March. [Downloadable!] (restricted)
  6. Guido Cozzi, 2003. "Innovating on Innovations," Rivista di Politica Economica, SIPI Spa, vol. 93(2), pages 3-29, March-Apr. [Downloadable!]
  7. Guido Cozzi, 2005. "A Note on Progressive Taxation and Cooperation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 859-865, December. [Downloadable!] (restricted)
  8. Peretto, Pietro F, 1998. " Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December. [Downloadable!] (restricted)
  9. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier. [Downloadable!] (restricted)
    Other versions:
  10. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September. [Downloadable!] (restricted)
  11. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September. [Downloadable!]
    Other versions:
  12. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December. [Downloadable!] (restricted)
  13. Daron Acemoglu, 2007. "Introduction to Modern Economic Growth," Levine's Bibliography 122247000000001721, UCLA Department of Economics. [Downloadable!]
  14. Chou, Chien-Fu & Talmain, Gabriel, 1996. " Redistribution and Growth: Pareto Improvements," Journal of Economic Growth, Springer, vol. 1(4), pages 505-23, December.
  15. Guido Cozzi & Luca Spinesi, 2004. "Information Transmission and the Bounds to Growth," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  16. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
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