Impact of Inequality on Innovation

The paper argues that inequality is due to a difference in profitability of firm, and the larger the difference in profitability between high profitable and low profitable firms, the lower the innovation activity. It is also claimed that at low inequality an increase in inequality slightly affects innovation, but at high inequality an increase in inequality negatively affects innovation. The paper also considers the impact of different types of taxation on inequality and argues that a tax on increase in wealth is more effective in reducing inequality and fostering innovation