Abstract 1

Table of Contents 2

1. Introduction 3

2. Preliminaries: Federal Funding for R&D 4

2.1 Federally Funded R&D Across Federal Agencies 5

2.2 Types of Expenditures That Federal Funding for R&D Supports 6

3. R&D Capital Stock Framework 7

3.1 Time Between Funding and Outlays 8

3.2 Response of Nonfederal Spending on R&D 9

3.3 Time Profile of Productivity Effects 11

3.4 Size of Productivity Effect 13

3.5 Depreciation of R&D Capital Stock 15

4. R&D Components Framework 17

4.1 Reallocation Channel of Labor Component 18

4.2 Training Channel of Labor Component 24

4.3 Additional Factors in the R&D Components Framework 26

5. Economic and Budgetary Effects of Changes in Federally Funded R&D 28

5.1 Economic Effects 29

5.2 Budgetary Effects 37

6. Conclusion 40

6.1 Present-Value Effects of a Change in Federal Funding for R&D 40

6.2 Areas of Uncertainty in Our Analysis 41

References 45

Appendix 53