Can RandD subsidies counteract the economic crisis? Macroeconomic effects in Germany

• Published in: Research policy Vol. 44; no. 3; pp. 623 - 633
• Main Authors: Brautzsch, Hans-Ulrich, Günther, Jutta, Loose, Brigitte, Ludwig, Udo, Nulsch, Nicole
• Format: Journal Article
• Language: English
• Published: 01.04.2015
• Subjects: Employment; Enterprises; Europe; Germany; Gross domestic product; Macroeconomics; Research and development; Small and medium sized enterprises; Western Europe
• ISSN: 0048-7333

During the economic crisis of 2008 and 2009, governments in Europe stabilized their economies by means of fiscal policy. After decades of absence, deficit spending was used to counteract the heavy decline in demand. In Germany, public spending went partially into RD subsidies in favor of small and medium sized enterprises. Applying the standard open input-output model, the paper analyzes the macroeconomic effects of RD subsidies on employment and production in the business cycle. Findings in the form of backward multipliers suggest that RD subsidies have stimulated a substantial leverage effect. Almost two thirds of the costs of RD projects are covered by the enterprises themselves. Overall, a subsidized RD program results in a production, value added and employment effect that amounts to at least twice the initial financing. Overall, the RD program counteracts the decline of GDP by 0.5% in the year 2009. In the year 2010 the effects are already procyclical since the German economy recovered quickly. Compared to the strongly discussed alternative uses of subsidies for private consumption, RD spending is more effective. All rights reserved, Elsevier