A Study of the Economic Impacts of the 2009 U.S. Stimulus Package and Its Science Policies

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The finding that information-technology?related increasesin total factor productivity (i.e., innovation)explained more than three-quarters of the post1995 increase in U.S. productivity growth is based on an enhanced production function framework. This research expands that framework and a related theoretical and empirical model (a disaggregated Marshallian Macroeconomic Model) to include science, health and education sectors in addition to the ten industrial and government sectors. The approach combines principles of both price theory and macroeconomic theory to examine the behavior of the overall economy. An important modification is the inclusion of firm entry and exit. The research also investigates the effects of varying the composition of the package on measures of short run, intermediate run and long run performance. Intellectual Merit: There is little theoretical basis upon which to build analyses of the effects of the stimulus package on science, health and education. This project combines price theory and macroeconomic theory to provide an urgently needed theoretical and empirical framework within which to examine the effect of science investments. The novel approach is that the research explicitly include a science sector that produces output information and other products with not only the usual inputs of labor, capital and money services but also input information. Broader Impact: This research expands past evidence that a disaggregated model of the U. S. economy works better in explanation and prediction than aggregated models that are in widespread use. Clearly, if models do not explain and predict very well, they are less useful in making monetary, fiscal and other policies. The work will consider the impact of various policy packages to demonstrate how the policies affect not only the entire economy but also specific sectors in both the short run and the long run. The results of these analyses, together with their computed "margins of error", are likely to be of great use to policy-makers.