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Subsidies in an R&D growth model with elastic labor

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Abstract

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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  • Jinli Zeng & Jie Zhang, "undated". "Subsidies in an R&D growth model with elastic labor," MRG Discussion Paper Series 1206, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqmrg6:12
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    File URL: https://economics.uq.edu.au/files/46896/1206.pdf
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