Macroeconomic Effects of Public R&D

Abstract Direct public funding of R&D investment to stimulate technological innovation has a strong theoretical case and has gained renewed attention in recent times as a way to address the long-term challenges of modern society, such as economic growth, climate change, energy independence, and national security. We estimate the dynamic macroeconomic effects of government R&D investment and we find that it is very effective in fostering the national innovation effort by crowding in private R&D investment and raising aggregate output in the long run, but also that it stimulates a strong expansion from the outset, in particular through anticipation effects.