In this article, we take a practical approach to addressing this question. If a policymaker came to us with a fixed budget of financial and political capital to invest in innovation policy, what would we advise? We discuss a number of the main innovation policy levers and describe the available evidence on their effectiveness: tax policies to favor research and development, government research grants, policies aimed at increasing the supply of human capital focused on innovation, intellectual property policies, and pro-competitive policies. In the conclusion, we synthesize this evidence into a single-page “toolkit,” in which we rank policies in terms of the quality and implications of the available evidence and the policies’ overall impact from a social cost-benefit perspective. We also score policies in terms of their speed and likely distributional effects.
American Economic Association