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Redistributive innovation policy, inequality, and efficiency
Author(s) -
Basu Parantap,
Getachew Yoseph
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12386
Subject(s) - economics , investment (military) , welfare , growth model , inequality , public capital , monetary economics , economic inequality , public spending , microeconomics , public investment , fiscal policy , market economy , mathematical analysis , mathematics , politics , political science , law
We examine the efficiency and distributional effects of regressive and progressive public R&D policies that target high‐tech and low‐tech sectors using a heterogenous‐agent growth model with in‐house R&D and incomplete capital markets. We find that such policies have important implications for efficiency and inequality. A regressive public R&D investment financed by income tax could boost growth and welfare via a positive effect on individual savings and effort. It could, however, also lower growth and welfare via its effect on the efficiency–inequality trade‐off. Thus, the relationship between public R&D spending and welfare is hump‐shaped, admitting an optimal degree of regressivity in public R&D spending. Using our baseline model, and the US state‐level GDP data, we derive the degree of regressiveness of public R&D investment in US states. We find that US states are more regressive in their R&D investment than the optimal regressiveness implied by our growth model.