NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aggregate Implications of Innovation Policy

Andrew Atkeson, Ariel T. Burstein

NBER Working Paper No. 17493
Issued in October 2011
NBER Program(s):   EFG

We present a tractable model of innovating firms and the aggregate economy that we use to assess the link between the responses of firms to changes in innovation policy and the impact of those policy changes on aggregate output and welfare. We argue that the key theoretical determinant of the relative long-run aggregate impact of alternative policies is their impact on the expected profitability of entering firms. We show that, to a first-order approximation, a wide range of policy changes have a long-run aggregate impact in direct proportion to the fiscal expenditures on those policies, and that to evaluate the aggregate impact of such policy changes, there is no need to calculate changes in firms' decisions in response to these policy changes.

We use these results to compare the relative magnitudes of the impact on aggregates in the long run of three innovation policies in the United States: the Research and Experimentation Tax Credit, federal expenditure on R&D, and the corporate profits tax. We argue that the corporate profits tax is a relatively important policy through its negative effects on innovation and physical capital accumulation that may well undo the benefits of federal support for R&D. We also use a calibrated version of our model to examine the absolute magnitude of the impact of these policies on aggregates. We show that, depending on the magnitude of spillovers, it is possible for changes in innovation policies to have a very large impact on aggregates in the long run. However, over a 15-year horizon, the impact of changes in innovation policies on aggregate output is not very sensitive to the magnitude of spillovers.

On the basis of these results we conclude that, while it is possible to make comparisons about the relative importance of different policies and sharp predictions about their aggregate impact in the medium term, it is very difficult to shed much light on the implications of innovation policies for long-run aggregate outcomes and welfare without accurate estimates as to the magnitude of innovation spillovers.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17493

Users who downloaded this paper also downloaded these:
Atkeson and Burstein w13326 Innovation, firm dynamics, and international trade
Kogan, Papanikolaou, Seru, and Stoffman w17769 Technological Innovation, Resource Allocation, and Growth
Chiu, Meh, and Wright w17512 Innovation and Growth with Financial, and other, Frictions
Hall w17178 Innovation and Productivity
Lucas and Moll w17495 Knowledge Growth and the Allocation of Time
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us