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R&D policies, endogenous growth and scale effects

  • Sener, Fuat
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    This paper constructs a scale-free endogenous growth model and studies the determinants of optimal R&D policy. The model combines two of the main approaches to removal of scale effects: the rent protection approach and the diminishing technological opportunities approach. The steady-state rate of innovation is a function of all of the model's parameters including the R&D subsidy/tax rate. Thus, growth is fully endogenous. Numerical simulations imply that it is optimal to tax R&D when innovations are of very small and very large magnitudes, and to subsidize R&D when innovations are of medium size. Under a wide range of empirically relevant calibrations, the subsidy rate turns out to be positive and fluctuates between 5% and 25%.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(08)00065-1
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    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 32 (2008)
    Issue (Month): 12 (December)
    Pages: 3895-3916

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    Handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:3895-3916
    Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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