Should the government subsidize innovation or automation?

This study introduces automation into a Schumpeterian growth model to explore the effects of R&D and automation subsidies. R&D subsidy increases innovation and growth but decreases the share of automated industries and the degree of capital intensity in the aggregate production function. Automation subsidy has the opposite effects on these macroeconomic variables. Calibrating the model to US data, we find that raising R&D subsidy increases the welfare of high-skill workers but decreases the welfare of low-skill workers and capital owners, whereas increasing automation subsidy increases the welfare of high-skill workers and capital owners but decreases the welfare of low-skill workers. Therefore, whether the government should subsidize innovation or automation depends on how it evaluates the welfare gains and losses of different agents in the economy.

• Publication year

  2018

• Venue

  Macroeconomic Dynamics

• Publication date

  2018-08-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1017/s1365100522000098
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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