Measuring the macroeconomic responses to public investment in innovation: evidence from OECD countries

Giovanna Ciaffi, Matteo Deleidi and Mariana Mazzucato

Industrial and Corporate Change, 2024, vol. 33, issue 2, 363-382

Abstract: The paper aims to assess the macroeconomic impacts of government investment in Research and Development (R&D) and more generic fiscal policies by quantifying the Gross domestic product (GDP) and business R&D investment multipliers. Following the recent literature on fiscal policy, we combine the Local Projection approach with fiscal shocks estimated using Structural Vector Autoregressive modeling by focusing on a panel of 15 Organization for Economic Co-operation and Development (OECD) countries for the 1981–2017 period. Our findings support the idea that expansionary fiscal policies can positively and persistently affect the GDP level and crowd in business R&D investment. Additionally, our results show that public investment in R&D generates the largest multiplicative effect both on GDP and business R&D than the one associated with more generic public expenditures, even when fiscal expectations are considered.

Date: 2024
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