Dynamically Optimal R&D Subsidies

33 Pages Posted: 11 Aug 2010  

Volker Grossmann

University of Fribourg - Faculty of Economics and Social Science; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Timo Trimborn

Leibniz Universität Hannover

Thomas Michael Steger

University of Leipzig/Institute for Theoretical Economics/Macroeconomics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 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.

Keywords: R&D subsidy, Transitional dynamics, Semi-endogenous growth, Welfare

JEL Classification: H20, O3, O4

Suggested Citation

Grossmann, Volker and Trimborn, Timo and Steger, Thomas Michael, Dynamically Optimal R&D Subsidies (August 4, 2010). Available at SSRN: https://ssrn.com/abstract=1656247 or http://dx.doi.org/10.2139/ssrn.1656247

Volker Grossmann (Contact Author)

University of Fribourg - Faculty of Economics and Social Science ( email )

Fribourg, CH 1700
Switzerland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Timo Trimborn

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Thomas Michael Steger

University of Leipzig/Institute for Theoretical Economics/Macroeconomics ( email )

Grimmaische Str. 12
D-04109 Leipzig
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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