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Innovation is a central driver of economic growth in the United States. Workers become more productive when they can make use of improved equipment and processes, and consumers benefit when new goods and services become available or when existing ones become better or cheaper— although the transition can be disruptive to established firms and workers as new products and processes supersede old ones. Looking ahead, innovation will continue to be important for economic growth, in part because the supply of workers to the economy is expected to increase at a much slower rate in the future.

Innovation produces some benefits for society from which individual innovators are not able to profit, and, as a result, those innovators tend to underinvest in such activity. Policymakers endeavor to promote innovation to compensate for that underinvestment. The federal government influences innovation through two broad channels: spending and tax policies, and the legal and regulatory systems. In this report, the Congressional Budget Office (CBO) examines the effects on innovation of existing policies and systems and the possible effects of a variety of proposals for changing those policies and systems (see Summary Table 1).


Suggested Citation
Congressional Budget Office. (2014). Federal policies and innovation. Washington, DC: Author.