Patent protection and public capital accumulation
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Patent protection and public capital accumulation Ken Tabata1
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper examines the balanced-growth-maximizing public investment policy in a growth model where the engines of economic growth are private R&D and public capital accumulation. The government allocates tax revenue between new investment and maintenance expenditure for public capital. We consider how the balanced-growth-maximizing public investment policy changes as patent protection becomes stronger, as has been done in many countries. The results show that as patent protection becomes stronger, the income tax rate to finance public investment should be lower and the expenditure share of new investment should be higher. The balanced-growth-maximizing public investment policy leads to a smaller government as patent protection becomes stronger. This paper also shows that the balanced-growth-maximizing public investment policy is equivalent to the welfaremaximizing public investment policy along the balanced growth path. We also characterize both the growth-maximizing and welfare-maximizing combination of public investment policy and patent policy along the balanced growth path. Keywords Patent protection · Public capital · Economic growth · Welfare JEL Classification E62 · O34 · O38 · O40
1 Introduction In this study, we explore the interactive effects of public investment policy and patent policy in a growth model where the engines of economic growth are private R&D and public capital accumulation. The government allocates tax revenue between new investment and maintenance expenditure for public capital. New government investments accumulate public capital in a one-to-one manner, while maintenance expenditures reduce the depreciation rate of public capital. We consider * Ken Tabata [email protected] 1
School of Economics, Kwansei Gakuin University, 1‑155 Uegahara Ichiban‑cho, Nishinomiya, Hyogo 662‑8501, Japan
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Fig. 1 Index of patent rights 1960–2005 in G7 countries
how the balanced-growth-maximizing public investment policy changes as patent protection becomes stronger, as has been done in many countries. We find that as patent protection becomes stronger, the income tax rate to finance public investment should be lower and the expenditure share of new investment should be higher. The balanced-growth-maximizing public investment policy leads to a smaller government as patent protection becomes stronger. One of the important changes that have significantly impacted the operating environments of firms in many countries is the recent strengthening of the protection of intellectual property rights, including patents. Figure 1 plots an index of patent rights on a 0-5 scale provided by Park (2008) and shows that the strength of patent rights in all G7 countries has increased since the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement of 1994.1,2 Strengthening patent rights enables firms with market power t
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