Dynamically Optimal R&D Subsidies
University of Fribourg - Faculty of Economics and Social Science; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)
Leibniz Universität Hannover
Thomas Michael Steger
University of Leipzig/Institute for Theoretical Economics/Macroeconomics; CESifo (Center for Economic Studies and Ifo Institute)
August 4, 2010
Previous research on optimal R&D subsidies has focussed on the long run. This paper characterizes the optimal time path of R&D subsidization in a semi-endogenous growth model, by exploiting a recently developed numerical method. Starting from the steady state under current R&D subsidization in the US, the R&D subsidy should significantly jump upwards and then slightly decrease over time. There is a negligible loss in welfare, however, from immediately setting the R&D subsidy to its optimal long run level, compared to the case where the dynamically optimal policy is implemented.
Number of Pages in PDF File: 33
Keywords: R&D subsidy, Transitional dynamics, Semi-endogenous growth, Welfare
JEL Classification: H20, O3, O4
Date posted: August 11, 2010
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