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Dynamically optimal R&D subsidization

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  • Grossmann, Volker
  • Steger, Thomas M.
  • Trimborn, Timo

Abstract

Previous research on optimal R&D subsidies has focussed on the long run. This paper characterizes the optimal time path of R&D subsidization in a semi-endogenous growth model, by exploiting a recently developed numerical method. Starting from the steady state under current R&D subsidization in the US, the R&D subsidy should significantly jump upwards and then slightly decrease over time. There is a negligible loss in welfare, however, from immediately setting the R&D subsidy to its optimal long run level, compared to the case where the dynamically optimal policy is implemented.

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Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 97.

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Date of creation: 2011
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Handle: RePEc:zbw:leiwps:97
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Keywords: R&D subsidy; transitional dynamics; semi-endogenous growth; welfare;

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Find related papers by JEL classification:
  • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
  • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
  • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Cited by:

  1. Werner, Katharina & Prettner, Klaus, 2014. "Human capital, basic research, and applied research: three dimensions of human knowledge and their differential growth effects," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100448, Verein für Socialpolitik / German Economic Association.
  2. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2011. "The Macroeconomics of TANSTAAFL," Hannover Economic Papers (HEP) dp-482, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. May Elsayyad & Kai A. Konrad, 2010. "Fighting Multiple Tax Havens," CESifo Working Paper Series 3195, CESifo Group Munich.
  4. Grossmann, Volker & Steger, Thomas M., 2012. "Optimal growth policy: The role of skill heterogeneity," Working Papers 117, University of Leipzig, Faculty of Economics and Management Science.
  5. Prettner, Klaus & Werner, Katharina, 2016. "Why it pays off to pay us well: The impact of basic research on economic growth and welfare," Research Policy, Elsevier, vol. 45(5), pages 1075-1090.
  6. Prettner, Klaus, 2016. "The implications of automation for economic growth and the labor share of income," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 04/2016, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  7. Gómez, Manuel A. & Sequeira, Tiago N., 2013. "Optimal R&D subsidies in a model with physical capital, human capital and varieties," Economic Modelling, Elsevier, vol. 30(C), pages 217-224.
  8. Chen, Ping-ho & Chu, Hsun & Lai, Ching-Chong, 2015. "Do R&D subsidies necessarily stimulate economic growth?," MPRA Paper 66061, University Library of Munich, Germany.
  9. Gómez, Manuel A. & Sequeira, Tiago N., 2014. "Should the US streamline its tax system? Analysis on an endogenous growth model," Economic Modelling, Elsevier, vol. 37(C), pages 113-119.
  10. Roos, Michael W. M., 2015. "The macroeconomics of radical uncertainty," Ruhr Economic Papers 592, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  11. Lin, Hwan C. & Shampine, L.F., 2014. "Finite-length Patents and Functional Differential Equations in a Non-scale R&D-based Growth Model," MPRA Paper 61603, University Library of Munich, Germany.

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