Social policies and R&D subsidies

Abstract

PurposeThe paper seeks to analyse the impact of different public policies on inequality, unemployment, growth and the tax burden.Design/methodology/approachA dynamic general equilibrium model is built, in which growth is driven by endogenous technical progress, to analyse the impacts of several policies (minimum wage, redistribution and R&D subsidies financed by an income tax).FindingsAll policies except pure redistribution are better than non‐intervention in terms of growth. The authors distinguish three major policy patterns. The Anglo‐Saxon model is characterised by high growth, high inequality, low unemployment and a low tax burden. The Nordic model combines high growth, low inequality and low unemployment, and a high tax burden. The Continental European model puts together medium inequality and a medium tax burden, and higher long‐term growth is paid for by high unemployment.Research limitations/implicationsThe model could be extended by the introduction of educational policy.Originality/valueThe paper distinguishes three configurations that capture the main features of the developments in Anglo‐Saxon countries, Scandinavian countries, and Continental European countries in the 1990s. It thereby provides a general framework to analyse and compare these experiences.