Expenditure tools for science and innovation allow governments to:

• directly invest in creating new knowledge for the public good e.g. through universities and government labs
• acquire or commit to goods and services to meet societal needs, particularly when those do not yet exist or are currently inadequate, encouraging others to develop new solutions
• incentivise actors to engage in research and innovation, particularly when deemed to benefit the rest of society
• redistribute resources to level-up access research and innovation, helping society attain more equitable and fairer outcomes

The use of these tools must meet common public expenditure standards and strive to ensure a level playing field across countries.

Public investment in scientific research is essential for understanding societal and planetary challenges and is widely recognised as an essential feature of effective national innovation systems.

Governments invest a significant amount of funding in universities and a variety of public research institutions and research infrastructures. Whilst some of this is directed towards specific priorities, for example mission-driven research, much of it is provided to support basic, curiosity-driven research across a broad range of disciplines. Academic freedom and autonomy are critical in this regard and in most OECD countries, research funding agencies have been established to administer competitive research funding programmes.  This competitive funding, allocated based on peer review, is complemented by direct funding to research providers. The ratio between these two types of funding varies across countries and is the subject of significant policy debate.

How to effectively steer public research, e.g. to provide solutions to urgent societal challenges, whilst preserving necessary freedom of enquiry is a major policy challenge.  Competition and excellence are considered as defining characteristics of effective and productive research systems but hyper-competition and overly narrow interpretations of excellence can have perverse effects. There is considerable policy concern about precarity and lack of risk-taking or breakthrough research and there is an increasing focus on how to effectively support interdisciplinary and team research.

Businesses are key actors in research and innovation systems, selecting, developing, and implementing new ideas in pursuit of economic opportunities. However, as seen during the COVID-19 crisis, government support may be needed for resilience and mobilisation towards addressing economic and societal challenges. Since close to 70% of R&D in the OECD area is carried out by firms, public innovation support policies need to be able to guide private innovation efforts to where they are most needed, especially where market signals prove to be insufficient and co-ordination is most challenging.

Recent OECD data and analysis shows that the policy mix is not entirely consistent with that ambition. R&D tax incentives, which have risen in popularity in recent decades as instruments of choice, are effective in achieving their generic R&D-raising objectives as long as they are consistently designed and implemented. However, they are insufficient to guide innovation to specific societal needs and represent suboptimal instruments to encourage investment in knowledge at the interface between basic research and actual product or process development. 

Supporting demonstration and scale-up of new sustainable solutions requires levels of funding beyond the capacity of governments, especially if different ministries and agencies operate in isolation in their respective sector. New ways of coordinating funding streams are explored in various countries, such as mission-oriented innovation policies and STI central transition funds. These efforts are vital not only for reaching critical mass but also for creating synergies throughout the innovation chain.

Public intervention is also critical to incentivise and guide the investment necessary for the deployment of new solutions. These will not be taken up by the private sector alone due to several externalities that impede collective action. An example of this is the network externalities associated with the infrastructure for hydrogen production, storage, and distribution.

Effective monitoring and evaluation through the entire innovation support cycle is crucial for demonstrating accountability and value for money in public spending, establishing the legitimacy and credibility of government innovation support policies. These are necessary for policy learning, prioritisation and improvement over time.

OECD contributes to the monitoring and assessment of research and innovation support policies through its work on developing and implementing methods for international comparisons and analysis. It contributes to transparent international statistical reporting according to shared guidelines, and works towards addressing significant measurement gaps, for example in terms of quantifying indirect or complex forms of financial support.  

Alongside its work of providing information on the design of research and innovation support policies, OECD conducts internationally coordinated analysis of the impacts of innovation support.