Is Inequality Harmful for Innovation and Growth? Price versus Market Size Effects
نویسنده
چکیده
We introduce non-homothetic preferences into an R&D based growth model to study how demand forces hape the impact of inequality on innovation and growth. Inequality affects the incentive to innovate via a price effect and a market size effect. When innovators have a large productivity advantage over traditional producers a higher extent of inequality tends to increase innovators’prices and mark-ups. When this productivity gap is small, however, a redistribution from the rich to the poor increases market sizes and speeds up growth. JEL classification: O15, O31, D30, D40, L16
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