Agglomeration, Innovation, and Spatial Reallocation: The Aggregate Effects of R&D Tax Credits

Agglomeration, Innovation, and Spatial Reallocation: The Aggregate Effects of R&D Tax Credits
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Volume/Issue: Volume 2022 Issue 131
Publication date: July 2022
ISBN: 9798400212666
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Topics covered in this book

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Labor , Economics- Macroeconomics , Money and Monetary Policy , Economics / General , Demography , agglomeration , innovation , R&D tax credits , R&D activity , R&D subsidy , R&D tax credit rate , aggregate outcome , Tax allowances , Credit ratings , Productivity , Wages , Global , elasticity of agglomeration , welfare effect , elasticity of congestion

Summary

I investigate the aggregate effects of R&D tax credits in the US. Because it subsidizes R&D activity and because credit rates vary between states, this policy has both spatial and dynamic effects on the economy. To address this issue, I construct an endogenous growth model with spatial heterogeneity and agglomeration spillovers in innovation. Aggregate outcomes in this model are thus affected by the spatial distribution of the population in the economy, which is itself endogenous and reacts to policy. I use this framework to identify a set of local R&D subsidies that maximize aggregate welfare.