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Dynamically optimal R&D subsidization

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

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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