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Effects of Patent Policy on Income and Consumption Inequality in an R&D-Growth Model

Chu, Angus C. (2009): Effects of Patent Policy on Income and Consumption Inequality in an R&D-Growth Model.

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Abstract

What are the effects of strengthening patent protection on income and consumption inequality? To analyze this question, this paper develops a quality-ladder growth model with wealth heterogeneity and elastic labor supply. The model predicts that strengthening patent protection increases (a) economic growth by stimulating R&D and (b) income inequality by raising the return on assets. However, whether it increases consumption inequality depends on the elasticity of intertemporal substitution. Calibrating the model to US data shows that strengthening patent protection increases income inequality by more than consumption inequality, and this divergence between income and consumption inequality is consistent with the data.

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