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The Macroeconomic Impact of Public Spending in Research and Development: An Initial Exploration for G7 and 15 Oecd Countries

Author

Listed:
  • Giovanna Ciaffi

    (Roma Tre University)

  • Matteo Deleidi

    (University of Bari Aldo Moro, Department of Political Sciences and University College London, Institute for Innovation and Public Purpose)

  • Enrico Sergio Levrero

    (Roma Tre University)

Abstract
This paper aims to assess the macroeconomic effect produced by fiscal policies targeted at innovation-focused public spending. Specifically, we estimate the fiscal multiplier associated with public R&D investment. We also aim to evaluate whether public innovation investment can crowd in business investment in R&D and generate additional employment. We combine the Local Projection approach with fiscal shocks estimated using Structural Vector Autoregressive modelling by focusing on a panel of G7 and 15 OECD economies for the 1981-2017 period. Our results show that public R&D expenditure produces higher fiscal multipliers than those generally found in the economic literature which focuses on the different components of public spending. Our results also show that this type of public expenditure can generate spillover effects, by crowding in private R&D and generating a positive impact on employment level. Findings are confirmed even when fiscal expectations are included.

Suggested Citation

  • Giovanna Ciaffi & Matteo Deleidi & Enrico Sergio Levrero, 2022. "The Macroeconomic Impact of Public Spending in Research and Development: An Initial Exploration for G7 and 15 Oecd Countries," Bulletin of Political Economy, Bulletin of Political Economy, vol. 16(1), pages 1-19, June.
    • Handle: RePEc:awu:journl:v:16:y:2022:i:1:p:1-19
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    Cited by:

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    More about this item

    Keywords

    Government investment in innovation; Business RD; Fiscal multipliers; Employment multipliers; Local projections;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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