The seminal study by Solow (1956) shows that economic growth in the long run must come from technological progress. The development of technologies in turn is driven by innovation and R&D. Therefore, patent protection and R&D subsidies are two important policy instruments that determine technological progress and economic growth. Since the development of the innovation-driven growth model by Romer (1990), many studies have used variants of the innovation-driven growth model to explore the macroeconomic effects of patent protection and R&D subsidies on innovation and economic growth. However, the microeconomic implications of these two policy instruments on the income distribution have received much less attention. Therefore, in this study, we explore the effects of patent protection and R&D subsidies on innovation as well as income inequality. We find that whether the relationship between innovation and inequality, which are both endogenous variables, is positive or negative depends on the underlying exogenous driving force (i.e., patent policy versus R&D subsidy). The growth-theoretic framework that we consider is the Schumpeterian growth model. We extend it by allowing for heterogeneous households who have different levels of asset holdings. As Piketty (2014) argues, an unequal distribution of wealth is an important cause of income inequality. Within this growth-theoretic framework, we find that although strengthening patent protection and raising R&D subsidies have the same macroeconomic effects of stimulating innovation and economic growth, they have drastically different microeconomic implications on income inequality. Therefore, it is important to consider beyond aggregate effects and investigate distributional implications when evaluating the overall effects of a policy instrument. When a strengthening of patent protection or a raise in R&D subsidies leads to a higher rate of economic growth, the real interest rate also rises leading to an increase in asset income, which is the cause of inequality in the model. As a result, strengthening patent protection and raising R&D subsidies both have a positive effect on income inequality via this interestrate channel. Intuitively, the higher interest rate increases the income of asset-wealthy households relative to asset-poor households. Furthermore, the two policy instruments carry an asset-value effect that affects income inequality. By increasing monopolistic profits, strengthening patent protection increases asset value and causes an additional positive effect on income inequality. In contrast, raising R&D subsidies suppresses income inequality by reducing asset value through creative destruction1 and consequently causing a decrease in asset income. As a result of the opposing interest-rate and asset-value effects, raising R&D subsidies has an overall ambiguous effect on income inequality. Specifically, if the quality step size is smaller (larger) than a threshold, then raising R&D subsidies leads to a lower (higher) degree of income inequality.