Philippe Aghion, Ufuk Akcigit, Antonin Bergeaud, Richard Blundell, David Hémous, Innovation and Top Income Inequality, In: INSEAD Working Paper, No. 2015/50/E, 2015. (Working Paper)
In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities. |
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David Hémous, Morten Olsen, The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality, In: CEPR Discussion Paper, No. DP10244, 2015. (Working Paper)
We construct an endogenous growth model with automation (the introduction of machines which replace low-skill labor) and horizontal innovation. The economy follows three phases. First, low-skill wages are low, which induces little automation, and income inequality and labor’s share of GDP are constant. Second, as low-skill wages increase, automation increases which reduces the labor share, increases the skill premium and may decrease future low-skill wages. Finally, the economy moves toward a steady state, where low-skill wages grow but at a lower rate than high-skill wages. The model is quantitatively consistent with the US labor market experience since the 1960s. |
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David Hémous, The dynamic impact of unilateral environmental policies, In: CEPR Discussion Papers, No. DP9733, 2015. (Working Paper)
This paper builds a two-country, two-sector (polluting, nonpolluting) trade model with directed technical change, examining whether unilateral environmental policies can ensure sustainable growth. The polluting good generates more or less emissions depending on its relative use of a clean and a dirty input. I show that a unilateral policy combining clean research subsidies and a trade tax can ensure sustainable growth, while unilateral carbon taxes alone increase innovation in the polluting sector abroad and generally cannot ensure sustainable growth. Relative to autarky and exogenous technical change respectively, the mechanisms of trade and directed technical change accelerate environmental degradation either under laissez-faire or with unilateral carbon taxes, yet both help reduce environmental degradation under the appropriate unilateral policy. I characterize the optimal unilateral policy analytically and numerically using calibrated simulations. Knowledge spillovers have the potential to reduce the otherwise large welfare costs of restricting policy to one country only. |
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Daron Acemoglu, Philippe Aghion, David Hémous, The environment and directed technical change in a North-South model, Oxford Review of Economic Policy, Vol. 30 (3), 2014. (Journal Article)
A key question in the economics of climate change is the importance of global policy coordination in reducing carbon emissions. In this paper, we study this question using a two-country (North–South) extension of Acemoglu et al. (2012) which introduces directed technical change into a general equilibrium model of climate change. We find that, first, the optimal policy necessarily requires global policy coordination, with the implementation of research subsidies and carbon taxes in both North and South. Second, under certain circumstances, appropriately chosen environmental regulations in the North alone can prevent the worst environmental disasters. In particular, such disasters can be prevented by a combination of carbon taxes and clean research subsidies under the restrictive conditions that (a) the two inputs are substitutable in both countries; (b) there is no international trade between the North and the South; and (c) the South imitates technologies invented in the North. Third, international trade between the North and the South typically makes it more difficult to prevent environmental disasters through unilateral policies in the North, because environmental regulation in the North may induce full specialization by the South in dirty input production, as imitation of clean technologies by the South then ceases to be profitable. Hence, given current circumstances, global policy coordination is highly desirable. |
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