Fact of the Week: CHIPS Act Could Boost US Productivity With Gains Reaching 0.2 to 0.4 Percent After Seven Years
Source: Andrew J. Fieldhouse and Karel Mertens, “The Social Returns to Public R&D” (Working Paper 33780 from National Bureau of Economic Research, May 2025)
Commentary: Fieldhouse and Mertens have shown that federal nondefense R&D funding has a strong causal impact on private-sector productivity growth. It also brings very high social returns to public R&D investment, estimated at 140 percent to 210 percent. Despite these substantial benefits, federal R&D spending has faced major cuts in recent fiscal consolidations. In the last three major consolidations, federal R&D spending as a share of GDP dropped by 60 percent, with over 25 percent of total cuts coming directly from the R&D budget. If future deficit reduction focuses on cutting nondefense R&D, the negative impact on productivity and economic growth could be much greater than in the past.
In this context, the CHIPS and Science Act offers a critical opportunity. Fieldhouse and Mertens apply their estimates to measure the potential economic impact of the CHIPS Act's R&D provisions. If fully funded, the R&D investments in the CHIPS Act could raise U.S. productivity within a few years. After seven years or more, the productivity gains could reach 0.2 percent to 0.4 percent. At their peak, the increase in public R&D could boost annual economic output by over $40 billion. This amount would exceed the total R&D spending authorized under the CHIPS Act over ten years, assuming all funds are fully appropriated.
