How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, we … build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their …

for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to … increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation … vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where …