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Redistributive Innovation Policy, Inequality and Efficiency

Basu, P.; Getachew, Y.

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Authors

Y. Getachew



Abstract

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, inequality and social mobility. A regressive public R&D investment financed by income tax could boost growth and welfare via a positive effect on individual savings and effort. However, it could 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 back out 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.

Citation

Basu, P., & Getachew, Y. (2020). Redistributive Innovation Policy, Inequality and Efficiency. Journal of Public Economic Theory, 22(3), 532-554. https://doi.org/10.1111/jpet.12386

Journal Article Type Article
Acceptance Date Jun 6, 2019
Online Publication Date Jul 30, 2019
Publication Date Jun 30, 2020
Deposit Date Jun 7, 2019
Publicly Available Date Jul 30, 2021
Journal Journal of Public Economic Theory
Print ISSN 1097-3923
Electronic ISSN 1467-9779
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 22
Issue 3
Pages 532-554
DOI https://doi.org/10.1111/jpet.12386
Public URL https://durham-repository.worktribe.com/output/1294946

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Copyright Statement
This is the accepted version of the following article: Basu, P. & Getachew,Y. (2020). Redistributive Innovation Policy, Inequality and Efficiency. Journal of Public Economic Theory 22(3): 532-554 which has been published in final form at https://doi.org/10.1111/jpet.12386. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.





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