The Effect of Innovation on Top Income Inequality : Cross-country evidence from EU member countries

Sammanfattning: We live in a time when innovative products and services including Smart Homes and face-recognition apps are celebrated and advertised as tools needed in making our economies and societies more efficient, climate-friendly and citizen-centred. At the same time, a worldwide rise in top income shares has gained a lot of attention from policymakers, activists, international organisations, and scholars. The idea that innovation and knowledge accumulation are key drivers of economic growth while income inequality may lag it, has become widely recognized. In light of these notions, this study explores the relationship between innovation and income inequality in (highincome) EU member countries. After finding no statistically significant effects of innovation on top income inequality when using high-quality patents and trademarks as proxies for innovative activities, the study concludes that previous economic research in the area has focused too little on the measurement aspects and determinants of firm-level innovation. In order to fully capture the distributive effects of innovation on income, a broader understanding of the business strategies used by start-ups, SMEs, and other companies when innovating new products and processes that do not require (or justify) the registration of patents is needed.