Question

What policies would encourage private sector R&D, and university and public R&D. Which of these policies have the highest public costs? Can you think of a way to focus any necessary public spending in a way that will get the most R&D bang for your buck?

Answer 1

Solution

An expansionary fiscal policy would encourage private sector R&D,University and Public R&D.

Under a expansionary fiscal policy,the government will stimulate the economy by increasing the aggregate demand by either increasing it's spending (or) cutting taxes (or) a combination of both.

All the above activities are possible under fiscal policy.

The Private Sector will spend more money on R&D only if their incentives (i.e.,in the form of subsidies,lower taxes,tax holidays) to do that increases

The govt. can encourage the Universities when it can subsidize the students fee so that more students can get university education which is a win-win situation for both the Govt.(it increases the skill set of the people ,which translates to an improvement in the employment rates in the economy) and University (more students ensures greater financial stability to the institutions,so that they can compete with their peers across the world)

Public R&D - Increasing the govt.spending will boost the aggregate demand in the economy.It can be through various means - increasing the transfer payments as a part of welfare schemes,increasing expenditure on improving infrastructure,etc.,)

I personally believe that in order to increase the R&D the most,the govt.can mandate the Private sector and Universities to contribute a certain amount of money / budget and effort towards the R&D in order to be eligible for the incentives / subsidies / Tax cuts from the government.

This will surely ensure that the R&D in the economy will increase.

This is because the public enterprise is generally less efficient so I prefer the 2 ways mentioned above

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