IDEAS home Printed from https://ideas.repec.org/p/zbw/leiwps/97.html
   My bibliography  Save this paper

Dynamically optimal R&D subsidization

Author

Listed:
  • 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.

Suggested Citation

  • Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2011. "Dynamically optimal R&D subsidization," Working Papers 97, University of Leipzig, Faculty of Economics and Management Science.
    • Handle: RePEc:zbw:leiwps:97
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/48851/1/666352143.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
    3. Lutz G. Arnold, 2000. "Endogenous technological change: a note on stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 219-226.
    4. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    5. Jones, Charles I., 2005. "Growth and Ideas," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 16, pages 1063-1111 Elsevier.
    6. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
    7. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-1164, December.
    8. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    9. Volker Grossmann & Thomas M. Steger & Timo Trimborn, 2016. "Quantifying Optimal Growth Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 451-485, June.
    10. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    11. Zvi Griliches, 1998. "Interindustry Technology Flows and Productivity Growth: A Reexamination," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 241-250 National Bureau of Economic Research, Inc.
    12. Schäfer, Andreas & Schneider, Maik T., 2015. "Endogenous Enforcement Of Intellectual Property, North–South Trade, And Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 19(05), pages 1074-1115, July.
    13. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    14. Holger Strulik, 2007. "Too Much of a Good Thing? The Quantitative Economics of R&D-driven Growth Revisited," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 369-386, June.
    15. Paul M. Romer, 2001. "Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?," NBER Chapters,in: Innovation Policy and the Economy, Volume 1, pages 221-252 National Bureau of Economic Research, Inc.
    16. repec:ebl:ecbull:v:15:y:2003:i:4:p:1-8 is not listed on IDEAS
    17. Bretschger, Lucas & Steger, Thomas, 2013. "Globalization, The Volatility Of Intermediate Goods Prices, And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 17(02), pages 402-430, March.
    18. McKinnon, Ronald & Schnabl, Gunther, 2008. "China's exchange rate impasse and the weak U.S. dollar," Working Papers 73, University of Leipzig, Faculty of Economics and Management Science.
    19. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
    20. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
    21. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-634, November.
    22. Galo Nuño, 2011. "Optimal research and development and the cost of business cycles," Journal of Economic Growth, Springer, vol. 16(3), pages 257-283, September.
    23. Thomas M. Steger, 2005. "Welfare Implications of Non-scale R&D-based Growth Models," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 737-757, December.
    24. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gehringer, Agnieszka & Prettner, Klaus, 2014. "Longevity and technological change," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2014, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    2. Grossmann, Volker & Steger, Thomas M., 2013. "Optimal growth policy: The role of skill heterogeneity," Economics Letters, Elsevier, vol. 119(2), pages 162-164.
    3. 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.
    4. Elsayyad, May & Konrad, Kai A., 2012. "Fighting multiple tax havens," Journal of International Economics, Elsevier, vol. 86(2), pages 295-305.
    5. 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.
    6. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2013. "The macroeconomics of TANSTAAFL," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 76-85.
    7. Lin, Hwan C., 2016. "The switch from patents to state-dependent prizes for technological innovation," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 193-223.
    8. Zheng, Zhijie & Huang, Chien-Yu & Yang, Yibai, 2018. "Inflation and Growth: A Non-Monotonic Relationship in an Innovation-Driven Economy," MPRA Paper 84768, University Library of Munich, Germany.
    9. Schünemann, Johannes & Trimborn, Timo, 2017. "Boosting taxes for boasting about houses: Status concerns in the housing market," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 05/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    10. Christos Karydas, 2017. "The inter-temporal dimension to knowledge spillovers: any non-environmental reason to support clean innovation?," CER-ETH Economics working paper series 17/267, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    11. 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.
    12. repec:bla:econom:v:84:y:2017:i:336:p:667-681 is not listed on IDEAS
    13. 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.
    14. Óscar Afonso & Tiago Sequeira, 2017. "Tradable and nontradable directed technical change," CEFAGE-UE Working Papers 2017_02, University of Evora, CEFAGE-UE (Portugal).
    15. Prettner, Klaus, 2016. "The implications of automation for economic growth and the labor share," Hohenheim Discussion Papers in Business, Economics and Social Sciences 18-2016, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    16. 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.
    17. Grafeneder-Weissteiner, Theresa & Prettner, Klaus & Südekum, Jens, 2018. "Three pillars of urbanization: Migration, aging, and growth," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    18. 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).
    19. 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.
    20. repec:eee:respol:v:47:y:2018:i:4:p:750-767 is not listed on IDEAS
    21. 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.
    22. repec:eee:ecmode:v:68:y:2018:i:c:p:435-449 is not listed on IDEAS

    More about this item

    Keywords

    R&D subsidy; transitional dynamics; semi-endogenous growth; welfare;

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:leiwps:97. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/vileide.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.