Chu, Angus C. and Cozzi, Guido: "
Effects of Patents versus R&D Subsidies on Income Inequality ",Review
of Economic Dynamics, forthcoming.
Effects of Patents versus R&D Subsidies
on Income Inequality
Chu, Angus C
China Center for Economic Studies, School
of Economics, Fudan University.
Cozzi, Guido
Department of Economics, University of St.
Gallen.
Abstract:
This study explores the effects of patent
protection and R&D subsidies on economic growth and income inequality using
a Schumpeterian growth model with heterogeneous households. We find that although
strengthening patent protection and raising R&D subsidies have the same
macroeconomic effect of stimulating economic growth, they have drastically
different microeconomic implications on income inequality. Specifically,
strengthening patent protection increases income inequality whereas raising
R&D subsidies decreases (increases) it if the quality step size is
sufficiently small (large). An empirically realistic quality step size is
smaller than the threshold, implying a negative effect of R&D subsidies on
income inequality. We also calibrate the model to provide a quantitative
analysis and find that strengthening patent protection causes a moderate
increase in income inequality and a negligible increase in consumption
inequality whereas raising R&D subsidies causes a relatively large decrease
in both income inequality and consumption inequality.
