2025/05/01 by Andrew J. Fieldhouse, Karel Mertens · 1 voice
Economics, Econometrics and Finance · #Innovation Policy and R&D
paper · pdf · doi:10.3386/w33780
Recent empirical evidence by Fieldhouse and Mertens (2024) points to a strong causal link between federal nondefense R&D funding and private-sector productivity growth, and large implied social returns to public R&D investment.We show that these high social return estimates broadly align with existing evidence on the social returns to private or total R&D spending.If the R&D increases authorized under the CHIPS and Science Act were fully appropriated, our modeling indicates a boost in U.S. productivity within a few years, reaching gains of 0.2-0.4% after seven years or more.At their peak, the direct productivity effects of the implied expansion in nondefense R&D alone would raise output by over 40 billion in a single year-exceeding total outlays from the CHIPS Act R&D provisions over a decade.The potential productivity impact of fiscal consolidations changing R&D spending is not clear ex ante.We show that in recent fiscal consolidations, cuts to federal R&D funding were largely borne by defense R&D, whereas funding for nondefense R&D was largely spared or was increased.Our evidence suggests that future deficit reduction efforts that instead emphasize cuts to nondefense R&D funding could have a larger adverse impact on productivity and economic growth than previous fiscal consolidations.