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Redistributive Innovation Policy, Inequality and Efficiency

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  • Parantap Basu

    () (Durham University, Durham University Business School)

  • Yoseph Getachew

    () (Department of Economics, University of Pretoria, 0028, Pretoria, South Africa)

Abstract

Using a heterogenous-agent growth model with in-house R&D and incomplete capital markets, we examine the efficiency and distributional e¤ects of alternative public R&D policies that target high-tech and low-tech sectors. We nd that such policies have important implication for efficiency, inequality and social mobility. A regressive public R&D investment nanced by income tax could boost growth and welfare via a positive e¤ect on individual savings and e¤ort. However, it could also discourage them via its effect on the efficiency inequality trade off. The relationship between public R&D spending and welfare is therefore hump shaped admitting an optimal degree of regressivity in public R&D spending. A case for optimal progressive public R&D investment, however, can be made with a properly designed R&D policy that combines consumption tax and investment subsidy policies.

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  • Parantap Basu & Yoseph Getachew, 2017. "Redistributive Innovation Policy, Inequality and Efficiency," CEGAP Working Papers 2017_02, Durham University Business School.
  • Handle: RePEc:dur:cegapw:2017_02
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H4 - Public Economics - - Publicly Provided Goods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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