Redistributive Innovation Policy, Inequality and Efficiency

Basu, P.; Getachew, Y.

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