Evaluation of R&D subsidies in the case of industry-specific technology stocks with spillovers

The objective of this paper is to gain insight in and compare the macroeconomic effects of increasing wage subsidies for researchers in Belgium in different industries. Starting from the observation that the implicit wage subsidy rate for R&D workers is not distributed evenly across industries, the paper wants to contribute to answering the question whether the current distribution of subsidies can be improved upon. Three features deemed central to the issue are taken into account: (1) the economy as a multi-industry production network, where all demand categories, including investment and intermediate consumption per industry, are aggregates of the different industries' products, each of which is itself a composite of regional varieties, allowing for international competition within each industry; (2) tech-nology as an innovation network, linking domestic and foreign stocks of knowledge per industry, so that not only the direct effect of increased R&D investment on the sector's own productivity is taken into account, but also the indirect effect such an increase may have on other industries' R&D stocks via knowledge spillovers; and (3) the importance of international competitiveness to a small open economy, that moreover lacks monetary autonomy, so that the foreign block is divided into one part that shares the same central bank ("the rest of the Euro Area") and another with a different monetary policy ("the rest of the world").