Research

Unslicing the Pie: AI Innovation and the Labor Share in European Regions (with Klaus Prettner and Francesco Venturini).

The present paper sheds light on the intricate relationship between the emergence of the new generation of digital technologies and the distribution of income between capital and labor inputs. Our research specifically aims to determine whether advancements in AI contribute to widening gaps in how rewards are distributed among factors of production, potentially fueling income inequality. Analyzing data from European regions dating back to 2000, we find that for every doubling of regional AI innovation, there is an 8% decline in the labor share. Delving deeper into the impact of AI on worker skill levels, we find that high-skilled labor remains unaffected by the development of the new technology. Conversely, there is strong evidence that AI reduces the income of workers with medium-level skills. But it hits low-skilled workers even harder, cutting their income share by 9%.

Medical Innovation, Life Expectancy, and Economic Growth (with Michael Kuhn, Klaus Prettner and Francesco Venturini), SSRN Working Papers 4491818.

Despite the increasing recognition of the importance of health for economic growth, the role of medical innovation in this process remains largely unexplored. Specifically, what are the causal effects of medical innovation on economic growth, and what shape does this relationship take? To address these questions, we propose an R&D-based economic growth model with overlapping generations, wherein life expectancy depends on healthcare utilization and medical innovation, and then empirically test the model's implications. Our findings reveal a clear causal pathway from medical innovation to economic growth, with increasing life expectancy serving as a key transmission channel. In the early stages of development, medical innovation does not have a positive effect on economic growth, whereas in intermediate stages, a positive and significant effect emerges. In late stages of development, where life expectancy is already very high, the effect becomes weaker and potentially negative because health improvements are increasingly difficult to achieve and become more resource-intensive.

Innovation and the post-WWII World’s Growth Process: Insights on the Mechanisms at Work (with Guido Cozzi and Francesco Venturini), SSRN Working Papers 4182392.

Based on the main insights of Schumpeterian growth theory, this paper investigates which R&D-based mechanism is better suited for explaining the pattern of world’s productivity growth. Using post-WWII data for a global sample of 115 countries, we estimate the relationship between productivity growth and the semi-endogenous and fully-endogenous growth components. We show that the semi-endogenous mechanism, based on the assumption of diminishing returns to knowledge, is the prevailing force and accounts for a larger share of world’s productivity growth.

Returns to Innovation and Income Inequality: A Centenary Perspective (with Jakob B. Madsen and Francesco Venturini), R&R at Journal of Economic Dynamics and Control.

Using historical data for 21 OECD countries, we investigate the role of research productivity in explaining the evolution of income inequality over the last one hundred years. We develop a Schumpeterian growth model that predicts that innovation impacts income inequality with two counteracting forces, a positive one associated with the increase in asset returns and a negative one related to the dissipation of innovation rents due to creative destruction. We first estimate the  long-run relationship between research productivity and income inequality over the period 1920-2019 and then simulate the dynamic response of inequality to an institutional shock that facilitated international patenting activities. Our estimates reveal a strong, positive association between research productivity and income inequality, with the asset returns channel being the dominant transmission mechanism.

Price Signaling with Salient-thinking Consumers  (with Elias Carroni and Andrea Mantovani), Games and Economic Behavior, vol. 138, March 2023, pp. 238-253.

This paper examines the signaling role of prices in a context of salient thinking. Consumers cannot observe product quality directly, and they focus on the product attribute – either quality or price – that stands out in the market. Our analysis shows that salience considerations mitigate the incentive to signal quality via price. Moreover, depending on the difference in quality between products, the separating price of the high-quality seller can be inflated or deflated in relation to a set-up of rational consumers. Our findings indicate that certain ways of setting prices for experience goods can be explained by combining price signaling with salient thinking.

The Long-run Investment Effect of Taxation in OECD countries (with Jakob B. Madsen and Francesco Venturini), Economica, vol. 90, No. 358, Aprile 2023, pp. 584-611.

The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long-run  implications of the model using annual data for 21 OECD countries over the period 1890-2015. We find that corporate taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance the investment in R&D. Thus, a revenue-neutral switch from corporate to personal income taxes is growth enhancing. 

Wealth Inequality in the Long Run: a Schumpeterian Growth Perspective (with Jakob B. Madsen and Francesco Venturini), Economic Journal, vol. 131, No. 633, January 2021, pp. 476-497.

This paper extends the analysis of the wealth-income ratio based on the neoclassical model in a Schumpeterian growth framework in which savings are channelled to both tangible and intangible capital investment. Using historical data for 21 OECD countries over the period 1860-2015, we find that the wealth-income ratio and, hence, wealth inequality, is negatively related to the rate of economic growth and positively related to the rates of investment in intangible and tangible assets, as predicted by the theory. Accounting for the innovation-induced counteracting growth-effect on the wealth-income ratio, we show that the net effect of investment in intangibles on wealth inequality is positive. Our estimates suggest that intangibles have been a contributing factor in wealth inequality since 1860 and that the marked increase in the investment in intangible assets in the post-WWII period has been a significant driver of wealth inequality since the 1970s. 

Multinationalization and the Scope of Innovation (with Sasan Bakhtiari and Alireza Naghavi), Industrial and Corporate Change, vol. 28, No. 5, October 2019, pp. 1057–1077.   

This research sheds light on how offshoring affects the quality of patents by firms. Patents applicable to diverse technology fields are considered to be of higher quality because they open the way for follow-up research and inventions. Using a matched firm-patent dataset, we apply the generality measure of patent citation to investigate the effect of offshoring on the extent to which patents registered by firms are spread across different product lines. We find that offshoring is generally associated with patents of lower quality. However, engaging in more international activities increases the quality of patents by firms with a more diversified portfolio of products. The finding is robust to various specifications and sampling tests.

Offshoring, Product Scope and Firm Performance (with Sasan Bakhtiari and Alireza Naghavi), in W. Kohler and E. Yalcin, Eds., New Developments in Global Sourcing, MIT Press, Cambridge, 2018. 

Assessing Piketty's Second Law of Capitalism (with Jakob B. Madsen and Francesco Venturini), Oxford Economic Papers, vol. 70, January 2018, pp. 1-21 (lead article).

This paper assesses Piketty's second fundamental law of capitalism to investigate patterns and determinants of wealth inequality over the last century and a half. We first discuss the foundations of this theory on the basis of the most popular growth models, and then perform a long-run regression analysis of wealth inequality using Piketty and Zucman's data and a new historical dataset for the OECD countries covering the period 1870-2010. We find that the wealth-to-income ratio is significantly related to the ratio between the saving rate, s, and the rate of income growth, g, between 1870 and 2010. The estimated coefficient for the s/g ratio ranges  from 0.05 to 0.18, depending on the specification, while the theory predicts a unitary value. It is also shown that the wealth-to-income ratio responds to the variations in income growth much more than to variations in the saving rate. 

R&D Policy, Productivity Growth and Distance to Frontier (with Francesco Venturini), Economics Letters, vol. 156, July 2017, pp. 92-94.

Using data from 20 US manufacturing industries, we find strong evidence that a more generous tax treatment of R&D positively impacts on the growth rate of total factor productivity and that this effect is stronger for industries farther from the technological frontier. The estimates also suggest that the productivity growth effect of R&D tax policy is comparable in size to that induced by technology transfers.

The Long-run Growth Effects of R&D Policy (with Francesco Venturini), Research Policy, vol. 46, February 2017, pp. 316-326.  

We assess the long-run growth effects of public policies to business R&D using data for US manufacturing industries and taking Schumpeterian growth theory as guideline. Our analysis indicates that R&D policy in the form of R&D tax credits fosters the rate of economic growth over the long-term horizon. This effect is quantitatively important: increasing R&D tax credits by 10 percent raises the rate of economic growth by 0.4 percent per year. We show that our findings are robust to controlling for several policy instruments, growth determinants and econometric issues. The overall evidence is consistent with the predictions of second-generation fully-endogenous growth models.

Training and Product Quality in Unionized Oligopolies (with Emanuele Bacchiega),  Economica, vol. 82, December 2015, pp. 1261-1301.

In this paper we analyse the private and public incentives towards skill acquisition when the skill level of workers determines the quality level of goods, and both labour and product markets are non-competitive. We show that both ‘pure’ (set by either firms or unions only) and ‘mixed’ (set by firms and unions) training scenarios may emerge at equilibrium. We show that firms have generally greater training incentives than unions, resulting in a higher product quality. Our welfare analysis shows that both unions and firms underinvest in training in comparison with the social optimum.

Multi-product Firms and Business Cycle Dynamics (with Francesco Turino), European Economic Review, vol. 57, January 2013, pp. 75-97. 

Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for an important share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms in a dynamic stochastic general equilibrium model. Our analysis is based on a model of firm dynamics with two deviations from the conventional real business cycle framework - imperfect competition with endogenous entry and multi-product firms. The combination of these two features enables our model to successfully generate a mechanism that accounts for the strong procyclicality of product creation. Due to the proliferation effect induced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.

A Schumpeterian Growth Model with Random Quality Improvements (with Carmelo Parello and Paul S. Segerstrom), Economic Theory, vol. 52, March 2013, pp 755-791.

A common assumption in the Schumpeterian growth literature is that the innovation size is constant and identical across industries. This is in contrast with the empirical evidence which shows that: (1) innovation size is not identical across industries and (2) the size distribution of profit returns from innovation is highly skewed toward the low value side, with a long tail on the high value side. In the present paper, we develop a Schumpeterian growth model that is consistent with this evidence. In particular, we assume that when a firm innovates, the size of its quality improvement is the result of a random draw from a Pareto distribution. This enables us to extend the class of quality-ladder growth models to encompass firm heterogeneity. We study the policy implications of this new setup numerically and find that it is optimal to heavily subsidize R&D for plausible parameter values. Although it is optimal to tax R&D for some parameter values, this case only occurs when the steady-state rate of economic growth is very low.

The Quality-Income Effect and the Selection of Location  (with Emanuele Bacchiega), Journal of Urban Economics, vol. 65, No. 2, March 2009, pp. 209-215.

We analyze a location-choice model with two vertically differentiated firms and two regions with different consumer income. We find that the high-quality producer settles in the poor region and the low-quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough. This apparently counter-intuitive result is not determined by technology or size issues; rather, it relies on the relationship between regional income disparities and product quality, which we call the “Quality-Income effect.”