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

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.