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Research on R&D Funding: The Impacts of Budget Cuts

Budget cuts have impacts – immediately as a decrease in discretionary spending, but also long term as the programs have to adjust to restricted budgets and minimize the scope of their projects. When it comes cutting research and development (R&D) programs, the impacts can last for years.

The following is a quick review of the literature surrounding the impacts of cuts to federal research funding, and what we can expect to see if cuts are to happen again.

Federal Funding

We have seen funding cuts before, with the Budget Control Act in 2011, that restricted discretionary spending for a decade. It resulted in an estimated $200 billion of federal funding that could have been invested in R&D, were it not for the BCA – and that loss had a lot of downstream impacts.[i] The BCA was actually so unpopular that legislators voted to increase the caps five times, decreasing the initial discretionary cuts significantly.

The most obvious impact of a discretionary funding cut would be a decrease in federal dollars going to research and development activities – both internally as funding for the activities of the various research intensive agencies, and externally as grant funding that flows to research activities in universities and industry. The BCA cuts had significant consequences for R&D in high risk spaces, notably the Department of Defense saw an estimated shortfall of $45.1 billion in R&D and equipment spending[ii], while the health sciences saw an estimate $7 billion less per year.[i]

These shortfalls not only mean less research performed and thus less innovations and discoveries that Americans can use, but they also mean fewer jobs,[iii] less agility to react to emergencies,[iv] and a reduced gross domestic product (GDP).


Having a robust innovation ecosystem is one of the things that defines the U.S. economy, and is one of the attributes that other countries try to emulate to become more competitive. This ecosystem is fed by both the breadth and novelty of the research being performed at universities across the country, but also by its ability to be converted into startup and spinoff companies that can take innovations to market.

One study found that a federal funding shock, identified as a 40% or more decrease in grant funding from a program, resulted in a decrease in high tech entrepreneurship of 18%. This decrease is visible as a reduced number of spinoffs and startup companies arising from prior grantees, as well as a reduction in the production of skilled labor from the field. Publications were also depressed due to shocks, with 15% fewer publications from prior grantees. It can take over 4 years for the field to recover from this reduction, longer if the funding is not restored to prior levels immediately. The researcher estimated that for each programmatic funding shock, there were 1000 fewer startups created.[v]

Not only does a funding decrease impact the outputs of the field, it also restricts the breadth and innovative potential of the research being performed. Funding scarcities have consistently resulted in the narrowing of the scope of funding calls, and the homogenization of the research that ends up being funded, creating grants that support safe, iterative work that is more likely to succeed, but also less likely to revolutionize the field.[vi]

Non-Federal Funding

The Matthew effect is often described as ‘the rich get richer’ and has long been overlaid onto the academic research space. While it is true that a successful researcher will earn more grants from the same institution, it is also true that the earning of a federal grant by a researcher makes them more likely to earn funding from non-federal sources.

Studies have consistently demonstrated this, with one study finding that each NIH dollar invested generating an additional $0.26 in non-federal sources as industry or nonprofit funders, with their smaller grant review teams, treat federal grants as a metric of quality of the applicant.[vii] Another study found a similar impact in life science funding, with each dollar of federal funding generating an $0.33 of non-federal funding which was found to have disproportionate effect on non-research-intensive institutions. The effect was 3.3-fold stronger for non-PhD granting institutions, 1.6-fold stronger for public institutions, and 2.4-fold stronger for institutions not ranked in the top 50 research universities.[viii] Both studies established that the federal dollars were not ‘crowding out’ any potential non-federal funds, instead the two increase synergistically and non-federal funding decreases disproportionally for non-research-intensive institutions in times of scarcity.


It’s no surprise that the receipt of grant funding increases researcher productivity. With money behind a project, more time can be invested into the research instead of pursuing more funding. This is especially pronounced at the post-doctoral and early career level, with the National Institutes of Health’s postdoctoral grant, the F32, showing a 40% higher chance that the researcher will publish at least one paper, a 20% higher chance that they will receive 50 or more citations. The impact of R01s, the early career grant that is essentially required to advance to tenure, is stronger on publication, with a 118% increase in the odds that a researcher will publish at least one paper.[ix] The National Science Foundation also has a early career grant, the Graduate Research Fellowship Program, which increases the odds that a grantee will both complete their doctoral degree[x] and increases their productivity during it.[xi] This effect is even more pronounced with marginal applications, the early career grants helping to retain people as researchers who may have otherwise dropped out of the pipeline.

All this to say that the availability of early career grants is incredibly important to the sustainability of the U.S.’s skilled STEM workforce. Cuts to programs that include doctoral, postdoctoral and early career funding programs will have an outsized effect on the retention of people in the pipeline. And in the response letters following Representative DeLauro, ranking member of the House appropriations committee, the NSF reported that a 22% cut to their agency would result in 4,600 fewer grants that the agency would be able to support. Health and Human Services responded that the cut to NIH would cut an estimated 5,000 grants from their portfolio.[xii] While both of these grant totals include both early career and other research grants, the impacts on future STEM workers are likely to be significant.



[i] Matt Hourihan, The Budget Control Act May Have Cost Over $200 Billion in Federal R&D 2021

[ii] Stephen S. Fuller, The Economic Impacts of the Budget Control Act of 2011 on DOD and non-DOD Agencies, 2012

[iii] Timothy M. Komarek, Kyle Butts, Gary A. Wagner, Government Contracting, Labor Intensity, and the Local Effects of Fiscal Consolidation: Evidence from the Budget Control Act of 2011, Journal of Urban Economics, Volume 132,

[iv] Trevor Stokes, US budget quagmire leaves global health funding in the lurch. Nat Med 17, 1028 (2011).

[v] Tania Babina, Alex Xi He, Sabrina T Howell, Elisabeth Ruth Perlman, Joseph Staudt, Cutting the Innovation Engine: How Federal Funding Shocks Affect University Patenting, Entrepreneurship, and Publications, The Quarterly Journal of Economics, Volume 138, Issue 2, May 2023, Pages 895–954,

[vi] Richard Whitley, Jochen Gläser, & Grit Laudel, The Impact of Changing Funding and Authority Relationships on Scientific Innovations. Minerva 56, 109–134 (2018).

[vii] Margaret E. Blume-Kohout, Krishna B. Kumar, Neeraj Sood, University R&D Funding Strategies in a Changing Federal Funding Environment, Science and Public Policy, Volume 42, Issue 3, June 2015, Pages 355–368,

[ix] Brian A. Jacob, Lars Lefgren, The impact of NIH postdoctoral training grants on scientific productivity, Research Policy, Volume 40, Issue 6, 2011, Pages 864-874,

[x] Alexandra Graddy-Reed, Lauren Lanahan, Jesse D'Agostino, Training across the academy: The impact of R&D funding on graduate students, Research Policy, Volume 50, Issue 5, 2021, 104224,

[xi] Alexandra Graddy-ReedLauren LanahanNicole M. V. Ross, The Effect of R&D Investment on Graduate Student Productivity: Evidence From the Life Sciences, The Journal of Policy Analysis and Management, Volume 37, Issue 4, 2018,

[xii] Responses to DeLauro Letter on Potential Impacts of Proposed House Republican Cuts, 2023