R&D and Economic Growth in Slovenia: A Dynamic General Equilibrium Approach with Endogenous Growth

Abstract

In the article, we model R&D as a major endogenous growth element in a small open economy general equilibrium framework and consider several R&D policy scenarios for Slovenia. Increase of the share of sectoral investment in R&D that is deductible from the CIT and increase of government spending on R&D turned out to be the most effective policy measures. While the former policy measure is still in part followed by an undesired dividend increase, the increase of government spending on R&D boosts long-run productivity in the economy, thus increasing the future value of firms, which is reflected in a desire dividend increase. The households that would gain more utility from such policy scenarios are those with more skilled and highly skilled labour, but not the very top earners in the economy.