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Why the Rich Should Like R&D Less

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  • Guido Cozzi

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 efforts: the higher the profit share of the individual's incomes the lower their ideal aggregate R&D and innovation. If rich shareholders were able to pursue their common interest and to discourage too much R&D compared, then 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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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2009_14.

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Date of creation: Jun 2008
Date of revision: Aug 2008
Handle: RePEc:gla:glaewp:2009_14

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Keywords: R&D and Growth; Social Preferences for Innovation; Inequality; Redistribution and Growth.;

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  1. 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.
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