Legislative fractionalization and partisan shifts to the left increase the volatility of public energy R and D expenditures

This article shows that legislative fractionalization and leftward (but not rightward) partisan shifts increase the volatility of public R and D expenditures in new energy technologies. We develop a highly accurate estimator for public energy R and D expenditures, and examine deviations from the estimated values using data for member states of the International Energy Agency, 1981–2007. Given that unpredictable fluctuation in public spending on new energy technology reduces the positive effect of such spending on innovation, our empirical analyses imply that countries with fractionalized legislatures can improve the performance of their energy technology programs by enacting institutional mechanisms that reduce the volatility of public spending. Similarly, the results indicate that left-wing and right-wing governments can improve the performance of public technology programs through agreements that distribute gains in such a fashion that partisan shifts do not cause spending cuts. Contravening the conventional wisdom, we also find that public energy R and D is unusually stable in the United States. - Highlights: ► Legislative fractionalization increases the volatility of public energy R and D. ► Partisan shifts to the left increase the volatility of public energy R and D. ► The article develops a method for estimating the volatility of energy policy.