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Substitutability Between Drugs, Innovation, and Fiscal Policy in the Pharmaceutical Industry

Author

Listed:
  • Felipa de Mello-Sampayo

    (Department of Economics, ISCTE-IUL, Av. Forcas Armadas)

  • Sofia de Sousa-Vale

    (Department of Economics, ISCTE-IUL, Av. Forcas Armadas)

  • Francisco Camoes

    (Department of Economics, ISCTE-IUL, Av. Forcas Armadas)

Abstract

A theoretical model is developed in order to examine and explain the growth and welfare effects of fiscal policies in the pharmaceutical industry. When the fiscal instrument is a tax over pharmaceutical firms’ profits, R&D by firms in the pharmaceutical sector results in growth if there is a generic market. Otherwise, a subsidy over pharmaceutical firms’ profits should be considered to generate innovation in medicines. In terms of policy implications, our empirical results suggest that stimulating generic competition in the pharmaceutical sector is a main instrument to contain costs and promote welfare.

Suggested Citation

  • Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camoes, 2015. "Substitutability Between Drugs, Innovation, and Fiscal Policy in the Pharmaceutical Industry," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 273-289, November.
    • Handle: RePEc:cuf:journl:y:2015:v:16:i:2:demellosampayo
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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