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Dynamically Optimal R&D SubsidiesVolker GrossmannUniversity of Fribourg - Faculty of Economics and Social Science; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Timo TrimbornUniversity of Hannover Thomas Michael StegerUniversity of Leipzig/Institute for Theoretical Economics/Macroeconomics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) August 4, 2010 Abstract: 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 working papers seriesDate posted: August 11, 2010Suggested CitationContact Information
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