In the article, we model R&D as a major endogenous growth element in a small
open economy general equilibrium framework and consider several R&D policy
scenarios for Slovenia. Increase of the share of sectoral investment in R&D
that is deductible from the corporate income tax and increase of government
spending on R&D turned out to be the most effective suggested policy
measures. While the former policy measure is still followed in part by an
undesired transfer of the tax relief to dividends, a moderate increase of
government spending on R&D boosts long-run productivity in the economy, thus
increasing the future value of firms, which is reflected in a desired
dividend increase. The households that would gain more utility from such
policy scenarios are those with more skilled and highly skilled labour, but
not the very top earners in the economy.
Trade Liberalization and Endogenous Growth in a Small Open Economy: A Quantitative Assessment