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

• Published in: Southern economic journal Vol. 77; no. 2; pp. 336 - 350
• Main Author: Chu, Angus C.
• Format: Journal Article
• Language: English
• Published: College of Business Administration, University of Tennessee at Chattanooga, Chattanooga, TN 37403 Southern Economic Association 01.10.2010
• Subjects: Analysis; Consumer economics; Consumption; Consumption theory; Economic growth; Economic growth models; Economic theory; Elasticity; Evaluation; Forecasts and trends; GDP; Gross Domestic Product; Growth models; Growth rate; Households; Income distribution; Income inequality; Industrial research; Industrialized nations; Interest rates; Inventions; Labor supply; Labor supply elasticity; Law; Modeling; Patent law; Patent policy; R&D; Research & development; Research and development; Studies; U.S.A; United States; Wealth; United States
• ISSN: 0038-4038; 2325-8012
• DOI: 10.4284/sej.2010.77.2.336

To analyze the effects of patent policy on growth and inequality, this article develops a qualityladder model with wealth heterogeneity and elastic labor supply. The model predicts that strengthening patent protection increases (a) economic growth by stimulating spending on research and development and (b) income inequality by raising the return on assets. Elastic labor supply creates an additional effect on income inequality. As for consumption inequality, the effect is ambiguous and depends on the elasticity of intertemporal substitution. Calibrating the model to the U.S. data shows that strengthening patent protection increases income inequality by more than consumption inequality, and this pattern is consistent with the data.