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Innovation, Market Concentration, and Inequality with Endogenous Time Preferences

Author

Listed:
  • Colin Davis

    (The Institute for the Liberal Arts, Doshisha University, JAPAN)

  • Laixun Zhao

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

We study how tax and transfer policies affect economic growth and income inequality in a framework in which growth, market structure and time preferences are all endogenously determined. Firm-level investment in product quality drives economic growth, creating a demand for household savings to finance both market entry and in-house R&D. By distinguishing between affluent households that invest in financial assets and poor households that live hand-to-mouth, and linking the former's savings to an endogenously determined discount rate, we derive the conditions for a stable balanced growth path. We then explore the effects of taxing the wage income and asset income of affluent households, while redistributing the proceeds to poor households, and find that diminishing marginal impatience introduces a new channel where both higher growth and lower inequality can be achieved, through tax policies that influence market concentration.

Suggested Citation

  • Colin Davis & Laixun Zhao, 2025. "Innovation, Market Concentration, and Inequality with Endogenous Time Preferences," Discussion Paper Series DP2025-27, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-27
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-27.pdf
    File Function: First version, 2025
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    Keywords

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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