Fiscal decentralization, local government efficiency and regional innovation

LI Feng-Jiao; WU Fei; REN Ding

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Science Research Management ›› 2021, Vol. 42 ›› Issue (2) : 112-120.

Fiscal decentralization, local government efficiency and regional innovation

Li Fengjiao¹, Wu Fei², Ren Ding³

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Abstract

During the painful period of China′s economic transformation into structural transformation, the traditional extensive development mode has been unable to cope with the structural contradictions brought about by the downward pressure of the economy. Additionally, it is urgent to rebuild the economic model with creative destruction. The report of the 19th National Congress pointed out that it is necessary to "accelerate the construction of an innovative country and strengthen strategic and technological strength" and it will be among the forefront of an innovative country from 2020 to 2035. How can promote innovation? It is difficult for market to effectively overcome the high cost, high risk and positive externalities of innovation activities. And the resulting "market failure" significantly reduces the level of innovation supply, so it requires the intervention of government forces. It is worth emphasizing that the government′s financial strength is needed as a support for direct financial technology investment, and indirect infrastructure construction, and even the technology financial system. As an important indicator of the financial strength of local governments, fiscal decentralization is gradually being taken seriously by the academic circles. Under China′s fiscal decentralization system, improving government efficiency and optimizing the output of innovation output will play an important role in achieving the country′s innovation-driven goal orientation. In particular, with the increasing absolute amount of local financial input, the government′s slight change in the efficiency of resource operations can also have a significant impact on the innovation-driven goals. In this context, the operational efficiency of local governments is included and the analysis is especially important.

Using the panel data of 30 provinces and cities in China from 1999 to 2016, this paper explores the relationship between "financial decentralization-government efficiency-regional innovation" by means of the threshold panel model. First, fiscal decentralization has an important impact on China′s regional innovation activities. High-level fiscal decentralization is an important guarantee for the effective financial resources of local governments. It can provide appropriate basic conditions for regional innovation activities. Low-level fiscal decentralization can not only improve regional innovation activity but also inhibit high-end innovation activities effect. Second, the innovative operational efficiency of local governments is an important condition for the effective using of fiscal resources. It is also an important variable for fiscal decentralization to act in regional innovations, and fiscal decentralization with a certain efficiency intensity can effectively enhance the high-end innovation activities of the region. Third, the orientation of local government financial resources is crucial to stimulating regional innovation activities. If we simply inject limited financial resources into the efforts of economic development, we will squeeze attention to innovation activities. Fourth, core technology innovation activities are an important for the development of China and other related regions. Under the current conditions of China′s economic development and transformation, only those high-end innovation can promote China′s industrial structure changes. Thus the core technology innovations improve the level of welfare of residents, while the effect of a large number of low-quality innovation activities is not obvious.

The enlightenment of this paper mainly includes the following points: First, ensuring that local governments have sufficient financial resources is an important condition for promoting regional innovation activities. In particular, it is impossible to carry out a one-size-fits-all approach to all innovation activities, and it is not possible to pursue a unified financial resource coverage for all innovation activities, and to support high-end innovation activities in a targeted manner. At the same time, to play the role of fiscal decentralization in promoting innovation, we must pay attention to the rational arrangement of the government′s fiscal expenditure structure, and appropriately increase the special fiscal expenditures that are beneficial to innovation. Secondly, we will further promote the improvement of the efficiency of government resources and put more energy into the cultivation of regional innovation capabilities. Third, creating the basic conditions for adapting innovation to achieve economic outcomes and optimize social welfare. By promoting the effective transformation of innovation output, and ultimately make the innovation output truly become the mature fruit of the country and the people.

The innovations of this paper are as follows: Firstly, the original research paradigm of "fiscal decentralization-economic growth" is promoted to a new framework of "fiscal decentralization-regional innovation", and embedded on this basis. The efficiency factor of government operation discusses the relationship between fiscal decentralization and regional innovation from the perspective of the government system. Secondly, in terms of technology, this paper changes the method of using the second item to estimate the nonlinear effect of past literature preference. The threshold regression model is used to capture the nonlinear information caused by the structural mutation of the data, therefore it can be used to explore the appropriate fiscal decentralization level. It also uses the intermediary test model to further clarify the fiscal decentralization under the influence of local government efficiency. Based on the deduction of this empirical model, it can provide a better interpretation of the path mechanism of fiscal decentralization acting on innovation, and then provide policy recommendations with detailed experience support.

Key words

fiscal decentralization / regional innovation / local government efficiency / threshold test / mediate effect test

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Li Fengjiao, Wu Fei, Ren Ding. Fiscal decentralization, local government efficiency and regional innovation[J]. Science Research Management. 2021, 42(2): 112-120

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