GROWTH-INEQUALITY TRADE-OFFS IN A MODEL WITH PUBLIC-SECTOR RESEARCH-AND-DEVELOPMENT

In this paper, we present an infinite-horizon economy where the stock of technological knowledge enhances the productivity of all households . Technological knowledge depends upon public sector investments in R& D. These investments are financed by income taxes. Households in our e conomy are differentiated by their initial capital endowments. We find that public policy affects the growth rate of per capita income but h as no impact on income inequality. We endogenize the public sector inv estments in R&D through majority voting. Under the endogenous policy, there is no trade-off between long-run growth and income inequality.