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α: calibrated so average coauthorship-adjusted count equals average raw count
Abstract In growth-cycle models, consumption smoothing motivates procyclical household savings and monopolistic competition engenders countercyclical horizontal R&D at fixed costs of capital. However, data in the US and in 15 OECD countries indicate countercyclical household saving, procyclical R&D, and high volatility. This paper explains the observed cyclical properties by realistic income taxes, R&D subsidies, R&D labor, and depreciation. R&D subsidies promote R&D to increase productivity by trading the levels for the varieties of intermediates. R&D-subsidy payments increase consumption and decrease household saving rates by raising taxable income beyond output, thus hindering future R&D and growth. Anticipated R&D-subsidy payments increase household-saving rates by raising returns to saving, thus promoting future R&D and growth. The US taxes yield unstable fluctuations with consecutive periods of R&D, low saving rates, and strong growth as in the technology boom. R&D labor and partial depreciation strengthen the roles of saving and R&D in attaining high volatility.