Chinese-Style Fiscal Decentralization, Government Innovation Investment, and Regional Innovation

Innovation is a key driver of high-quality economic development. Building strong relationships between central and local financial authorities, with a clear division of powers and responsibilities and well-coordinated fiscal resources, is both practical and significant. Such collaboration enhances the government’s ability to support scientific and technological innovation, leading to improved outcomes. In this study, multiple mechanisms of fiscal decentralization and government innovation investment in regional innovation were explored based on Chinese-style fiscal decentralization, the theory of fiscal decentralization, and the innovation system. Provincial panel data from 2008 to 2021 were used to examine both the direct effect of fiscal decentralization and the mediating effect of government innovation investment on regional innovation. The results show that fiscal decentralization distorts the government’s fiscal expenditure behavior, significantly inhibiting regional innovation enhancement. The results of a mechanism analysis demonstrate that fiscal decentralization weakens the government’s support and guidance for scientific and technological innovation, but increasing innovation investment can offset this effect and enhance the regional innovation level. Overall, fiscal decentralization negatively affects regional innovation by inhibiting the government’s innovation investment. To address these challenges, the fiscal system requires deeper reform, adjusting the relationship between central and local governments. Additional measures should include improving the government’s performance appraisal system, guiding local authorities to adopt appropriate performance perspectives, increasing fiscal expenditure and the government’s role in scientific and technological innovation, and enhancing independent scientific and technological innovation.