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Aggregate implications of innovation policy

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  • Andrew Atkeson
  • Ariel Burstein

Abstract

In this paper we present a tractable model of innovating firms and the aggregate economy that we use to assess quantitatively 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 show that, to a first-order approximation, a wide range of policy changes have a long-run impact in direct proportion to the fiscal expenditures on those policies, and that to evaluate the aggregate impact of a policy change, 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. 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 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 in the absence of direct quantitative evidence on the magnitude of spillovers.

Suggested Citation

  • Andrew Atkeson & Ariel Burstein, 2011. "Aggregate implications of innovation policy," Staff Report 459, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:459
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    References listed on IDEAS

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    Cited by:

    1. Aghion, Philippe & Akcigit, Ufuk & Fernández-Villaverde, Jesús, 2012. "Optimal Capital Versus Labor Taxation with Innovation-Led Growth," Scholarly Articles 27755236, Harvard University Department of Economics.
    2. Steve Raymond & Lukas Schmid & Anastasios Karantounias & Mariano Croce, 2017. "A Tax Plan for Endogenous Innovation," 2017 Meeting Papers 109, Society for Economic Dynamics.
    3. Martin Beraja, 2017. "Counterfactual Equivalence in Macroeconomics," 2017 Meeting Papers 1400, Society for Economic Dynamics.
    4. Nicolas Serrano-Velarde & Douglas Hanley & Ufuk Akcigit, 2012. "Back to Basics: Basic Research Spillovers, Innovation Policy and Growth," 2012 Meeting Papers 665, Society for Economic Dynamics.
    5. Philippe Aghion & Antonin Bergeaud & Timo Boppart & Peter J. Klenow & Huiyu Li, 2018. "Missing Growth from Creative Destruction," Working Papers 18-18, Center for Economic Studies, U.S. Census Bureau.
    6. de Ridder, Maarten, 2016. "Investment in productivity and the long-run effect of financial crises on output," LSE Research Online Documents on Economics 86180, London School of Economics and Political Science, LSE Library.
    7. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
    8. repec:fip:fedfel:00146 is not listed on IDEAS
    9. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    10. Nezih Guner & Andrii Parkhomenko & Gustavo Ventura, 2018. "Managers and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 256-282, July.
    11. Bøler, Esther Ann & Moxnes, Andreas & Ulltveit-Moe, Karen-Helene, 2012. "Technological Change, Trade in Intermediates and the Joint Impact on Productivity," CEPR Discussion Papers 8884, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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