Government Spending Composition, Technical Change, and Wage Inequality

Cozzi, G.; Impullitti, G.

doi:10.1111/j.1542-4774.2010.tb00557.x

Government Spending Composition, Technical Change, and Wage Inequality

Cozzi, G.; Impullitti, G.

Authors

G. Cozzi

G. Impullitti

Contributors

Silvia Galli xmqn48@durham.ac.uk
Other

Abstract

In this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the U.S. economy in the late 1970s and in the 1980s, as well as the simultaneous increase in inequality and in education attainments. Since the late 1970s U.S. policymakers began targeting commercial innovations more directly and explicitly. We focus on the shift in the composition of public demand toward high-tech goods, which, by increasing the market-size of innovative firms, functions as a de facto innovation policy tool. We build a quality-ladders non-scale growth model with heterogeneous industries and endogenous supply of skills, and show that an increase in the technological content of public spending stimulates R&D, raises the wage of skilled workers, and, at the same time, stimulates human capital accumulation. A calibrated version of the model suggests that government policy explains between 12% and 15% of the observed increase in wage inequality in the period 1976–1991. (JEL: E62, J31, O33, O41)

Citation

Cozzi, G., & Impullitti, G. (2010). Government Spending Composition, Technical Change, and Wage Inequality. Journal of European Economic Association, 8(6), 1325-1358. https://doi.org/10.1111/j.1542-4774.2010.tb00557.x

Journal Article Type	Article
Publication Date	Dec 1, 2010
Deposit Date	Jul 29, 2011
Journal	Journal of the European Economic Association
Print ISSN	1542-4766
Electronic ISSN	1542-4774
Publisher	Oxford University Press
Peer Reviewed	Peer Reviewed
Volume	8
Issue	6
Pages	1325-1358
DOI	https://doi.org/10.1111/j.1542-4774.2010.tb00557.x
Public URL	https://durham-repository.worktribe.com/output/1523472