6. Conclusion
In this study, we have explored the effects of innovation policies, such as patent protection and R&D subsidies, on innovation and economic growth as well as income inequality, which is often neglected by studies in the literature. We have shown that policy instruments may have similar aggregate effects on innovation and economic growth but very different distributional effects on inequality. Specifically, we find that strengthening patent protection causes a moderate increase in income inequality and consumption inequality whereas raising R&D subsidies causes a relatively large decrease in both income inequality and consumption inequality. These results suggest that if the objective of a government is to enhance economic growth and reduce inequality, then the government should raise R&D subsidies instead of (or at least in combination with) strengthening patent protection. In our analysis, we have focused on a non-distortionary tax instrument. Considering more realistic distortionary tax instruments may lead to additional insights and different implications on before-tax and after-tax income inequality.
In this study, we have considered a Schumpeterian model with heterogeneity in household asset holdings. Our model focuses on asset income inequality instead of wage income inequality for two reasons. First, wage inequality in the form of skill premium has received much attention in the literature, but only a relatively small number of studies have considered asset income inequality in the Schumpeterian growth model. Second, empirical studies, such as Atkinson (2000, 2003) and Piketty (2014), have shown that inequality in asset income is playing an increasingly important role.27 Finally, although our model does not feature tangible assets such as physical capital, intangible assets are an important part of the modern economy.
