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Redistributive innovation policy, inequality and efficiency.

Basu, P. and Getachew, Y. (2020) 'Redistributive innovation policy, inequality and efficiency.', Journal of public economic theory., 22 (3). pp. 532-554.


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.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Publisher 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 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
Date accepted:06 June 2019
Date deposited:07 June 2019
Date of first online publication:30 July 2019
Date first made open access:30 July 2021

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