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Subsidies in an R&D growth model with elastic labor

  • Zeng, Jinli
  • Zhang, Jie

This paper compares different subsidies in an R&D growth model with competitive suppliers of a final good and monopolistic suppliers of intermediate goods. Unlike existing studies with lump-sum taxes and fixed labor, we assume distortionary taxes and elastic labor, finding some new insights. First, subsidizing R&D investment is more effective than subsidizing final output or subsidizing the purchase of intermediate goods in terms of promoting growth. Second, in terms of raising welfare, the R&D subsidy may also be more effective than the other subsidies and all of them are dominated by their mix, but none can achieve the social optimum.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 3 (March)
Pages: 861-886

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:3:p:861-886
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  1. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  2. Jones, C-I & Williams, J-C, 1996. "Too Much of a Good Thing? The Economics of Investment in R&D," Papers 538, Harvard - Institute for International Development.
  3. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  4. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  6. King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers 225, University of Rochester - Center for Economic Research (RCER).
  7. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268 National Bureau of Economic Research, Inc.
  8. Nadiri, M.I., 1993. "Innovations and Technological Spillovers," Working Papers 93-31, C.V. Starr Center for Applied Economics, New York University.
  9. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  10. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
  11. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  12. Charles I. Jones & John C. Williams, 1997. "Measuring the social return to R&D," Finance and Economics Discussion Series 1997-12, Board of Governors of the Federal Reserve System (U.S.).
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