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Capital Income Tax, R&D Technology, and Economic Growth

Author

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  • Tenryu, Yohei

Abstract

This paper shows that, in a R&D-based growth model in which vertical and horizontal innovations occur simultaneously, increasing the capital income tax leads to faster the productivity growth and a welfare growth. For this result to hold, the production function for both vertical and horizontal innovations must have constant marginal labor productivity. Furthermore, the paper investigates whether subsidies for both R&D accelerate or deteriorate economic growth and welfare. The government gives more subsidies to the vertical sector with more productivity, leading to economic growth and welfare increases. Conversely, when the government provides subsidies that exceed the threshold ratio in low-productivity sectors, economic growth and welfare are impeded.

Suggested Citation

  • Tenryu, Yohei, 2017. "Capital Income Tax, R&D Technology, and Economic Growth," MPRA Paper 123794, University Library of Munich, Germany, revised 27 Feb 2025.
    • Handle: RePEc:pra:mprapa:123794
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    More about this item

    Keywords

    Endogenous growth; Capital income tax; Vertical innovation; Horizontal Innovation; Scale effect; Subsidy.;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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