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Should the government subsidize innovation or automation?

Author

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  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi
  • Liao, Chih-Hsing

Abstract

This study introduces automation into a Schumpeterian growth model to explore the effects of R&D and automation subsidies. R&D subsidy increases innovation and growth but decreases the share of automated industries and the degree of capital intensity in the aggregate production function. Automation subsidy has the opposite effects on these macroeconomic variables. Calibrating the model to US data, we find that raising R&D subsidy increases the welfare of high-skill workers but decreases the welfare of low-skill workers and capital owners, whereas increasing automation subsidy increases the welfare of high-skill workers and capital owners but decreases the welfare of low-skill workers. Therefore, whether the government should subsidize innovation or automation depends on how it evaluates the welfare gains and losses of different agents in the economy.

Suggested Citation

  • Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2023. "Should the government subsidize innovation or automation?," Macroeconomic Dynamics, Cambridge University Press, vol. 27(4), pages 1059-1088, June.
    • Handle: RePEc:cup:macdyn:v:27:y:2023:i:4:p:1059-1088_8
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    Cited by:

    1. YANO Makoto & FURUKAWA Yuichi, 2019. "Economic Black Holes and Labor Singularities in the Presence of Self-replicating Artificial Intelligence," Discussion papers 19062, Research Institute of Economy, Trade and Industry (RIETI).
    2. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2019. "Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy," MPRA Paper 95824, University Library of Munich, Germany.
    3. Kohei Okada, 2020. "Dynamic Analysis of Education, Automation, and Economic Growth," Discussion Papers in Economics and Business 20-09, Osaka University, Graduate School of Economics.

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    More about this item

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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