Why the Rich Should Like R&D Less (revised version)

It is well known that research and development (R&D) is an important engine for economic growth. Also, initial wealth inequality and subsequent economic growth are well known to be related. This paper links inequality and R&D-driven growth. It shows that in a class of economies where R&D is the main engine for growth, di¤erent wealth groups di¤er in their desire for aggregate innovative e¤orts: the higher the pro…t share of the individual’s incomes the lower their ideal aggregate R&D and innovation. If rich shareholders were able to pursue their common interest and to discourage too much R&D compared, then a pro-labour government able to impose distortionary progressive taxation, by minimizing the di¤erence between the rich and the poor can maximize growth. Such predicted negative relationship between desired R&D and dynastic wealth is robust to any subsidy rate lower than 100%. Keywords: R&D and Growth; Social Preferences for Innovation; Inequality, Redistribution and Growth. JEL Classi…cation: O31, O32, O38, P16, P48.