Dynamically Optimal R&D Subsidization

By Volker Grossmann, Thomas Steger, Timo Trimborn. Social Science Research Network, 2013

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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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c94531de86d33f877bc4ae88d1a91ba35bedcafd