Is inequality harmful for innovation and growth? Price versus market size effects

@article{Foellmi2017IsIH,
  title={Is inequality harmful for innovation and growth? Price versus market size effects},
  author={Reto Foellmi and Josef Zweim{\"u}ller},
  journal={Journal of Evolutionary Economics},
  year={2017},
  volume={27},
  pages={359-378}
}
We introduce non-homothetic preferences into an R&D based growth model to study how demand forces shape 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… CONTINUE READING
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