IMPACT OF PUBLIC EXPENDITURES TO BOOST INNOVATION
Rikke Lilienthal (Ministry of Finance Denmark)Paper completed: May 20051. Introduction
A comprehensive view of the effect of public expenditures on growth needs a deeper analysis of
the impact of public expenditures. Thus, specific studies of single components of the public
budget could serve as a starting point to reach – in the end – a general methodology and to
develop criteria for impact assessments. In this context a broad and thorough input-output-
assessment would be desirable in order to get a clearer insight into the efficiency and
productivity aspects of specific public expenditures. The analysis of public R&D-programmes
aimed at promoting private R&D, innovation and growth are of prime interest in the view of the
importance of R&D to promote growth.
The studies should cover aspects like general framework conditions, spill-over effects,
crowding-out effects (public/private), or the relationship between quality improvements and
public balances. The governance of research institutions, the design of public support, co-
operation between publicly controlled institutions and private enterprises, or the efficiency of
educational and research/innovation systems (allocation mechanisms) are further aspects of such
an assessment.
Against that background, this paper focuses on impact assessment with special reference to
public investments regarding R&D and innovation and aims at giving some general guidelines
on possible aspects and criteria for an impact assessment answering specifically the following
questions:
- What are the actual R&D and innovation expenditures?
- What are the costs and benefits for the government when financing R&D?
- Why is there reason to believe in spill-over effects?
- What does empirical work say?
2. Broad developments of public and private innovation spending
Going through the literature on links between the composition of public expenditure and revenue
and long-term growth confirms the importance of taking into account both the costs (i.e. higher
taxation) and the benefits (i.e. reaching policy objectives) of public spending.
The ultimate objective is that the investments will result in growth but there might also be
disadvantages. Governmental investments might crowd out private investments and the utility of
the society would then not be improved. Furthermore, governmental investments often result in