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This paper introduces an endogenous growth general equilibrium model of firm dynamics and innovative investment for the Spanish economy that allows a better understanding of the medium-term effects of economic policies and shocks. We calibrate the model using both aggregate and firm-level data. We then use the model to assess the macroeconomic consequences of the different components of the Next Generation EU (NGEU) program, including public investment, private capital transfers, and innovative investment transfers. According to our baseline simulation, the NGEU funds significantly foster economic activity, with annual GDP growth increasing between 0.08 and 0.13 percentage points over the period of NGEU funds disbursement. In particular, we find that one of the key drivers of these output gains is the endogenous response of productivity to the fiscal stimulus. Among the different policy instruments, we find that innovation transfers deliver the largest effects on aggregate output, only matched by highly efficient public investment.
