A Politico-Economic Analysis of the European Union’s R&D Policy
AbstractThis paper provides a politico-economic analysis of the European Union’s (EU) R&D policy. It develops an open-economy R&D-growth model characterized by two parameters that capture respectively the degree of technology spillover and the effectiveness of lobbying. In a non-cooperative equilibrium, each country chooses the level of R&D subsidy independently and fails to internalize technology spillover. Consequently, R&D subsidy is underprovided. In an economic union, the central government internalizes technology spillover but is vulnerable to lobbying by politicians from each country, who attempt to free-ride on the central government budget. Consequently, R&D subsidy is overprovided; however, this overprovision becomes less severe as the degree of technology spillover increases. Therefore, technology spillover has a surprisingly positive effect on welfare in an economic union. As for the effect on relative welfare, there is a cutoff value for the degree of technology spillover such that if and only if spillover is above this threshold, then an economic union dominates independent countries in welfare. Furthermore, this threshold is an increasing function in the effectiveness of lobbying. This paper also considers the possibility that the EU faces a binding budget ceiling. In this case, lobbying on R&D subsidy exerts a distortionary effect on revenue allocation, and hence a welfare loss continues to exist.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10329.
Date of creation: Jul 2008
Date of revision:
endogenous growth; policy coordination; lobbying; R&D subsidy;
Other versions of this item:
- Chu, Angus C., 2009. "A politico-economic analysis of the European Union's R&D policy," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 582-590, December.
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-INO-2008-09-13 (Innovation)
- NEP-POL-2008-09-13 (Positive Political Economics)
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