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Subsidies in an R&D growth model with elastic labor

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  • Zeng, Jinli
  • Zhang, Jie

Abstract

This paper compares different subsidies in an R&D growth model with competitive suppliers of a final good and monopolistic suppliers of intermediate goods. Unlike existing studies with lump-sum taxes and fixed labor, we assume distortionary taxes and elastic labor, finding some new insights. First, subsidizing R&D investment is more effective than subsidizing final output or subsidizing the purchase of intermediate goods in terms of promoting growth. Second, in terms of raising welfare, the R&D subsidy may also be more effective than the other subsidies and all of them are dominated by their mix, but none can achieve the social optimum.
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  • Zeng, Jinli & Zhang, Jie, 2007. "Subsidies in an R&D growth model with elastic labor," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 861-886, March.
    • Handle: RePEc:eee:dyncon:v:31:y:2007:i:3:p:861-886
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