Patent Policy and Income Inequality in a Schumpeterian Model with the Spirit of Capitalism

Abstract

This study incorporates heterogenous households into the Schumpeterian model with the spirit of capitalism (SOC) to study income inequality. The SOC is modeled as wealth entering the utility function. Our results are as follows. First, a stronger SOC decreases consumption inequality, whereas patent policy has no effect on consumption inequality. Second, the effect of the SOC on income inequality depends on the step size of quality improvement. As the degree of the SOC increases, income inequality decreases (increases) if the step size of quality improvement is below (above) a threshold. Under real world structural parameter space, a stronger SOC decreases income inequality. Third, stronger patent protection increases income inequality, but this effect decreases with the degree of the SOC.

Keywords: heterogenous households, income inequality, spirit of capitalism, patent policy, Schumpeterian model