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Balancing fiscal expenditure competition and long-term innovation investment: Exploring trade-offs and policy implications for local governments

PloS one, 2023-11, Vol.18 (11), p.e0293158-e0293158 [Peer Reviewed Journal]

COPYRIGHT 2023 Public Library of Science ;2023 Wenjuan, Zhao 2023 Wenjuan, Zhao ;ISSN: 1932-6203 ;EISSN: 1932-6203 ;DOI: 10.1371/journal.pone.0293158

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  • Title:
    Balancing fiscal expenditure competition and long-term innovation investment: Exploring trade-offs and policy implications for local governments
  • Author: Wenjuan, Song ; Zhao, Kai
  • Li, Rita Yi Man
  • Subjects: Analysis ; China ; Decentralization in government ; Economic policy ; Expenditures, Public ; Government competition ; Government finance ; Influence ; Information management ; Investments ; Local government ; Management ; Physical Sciences ; Science and technology policy ; Social Sciences ; Technological innovations
  • Is Part Of: PloS one, 2023-11, Vol.18 (11), p.e0293158-e0293158
  • Description: The mobility of economic factors across jurisdictions has led to increased fiscal competition among decentralized subnational governments. This study examines the relationship between fiscal competition and long-term investment in innovation at the local government level. Panel data analysis, encompassing expenditures, taxes, and innovation inputs from 18 municipalities over a 10-year period, is employed using fixed effects regression. The results reveal a negative correlation between fiscal competition and expenditure on innovation, indicating that intensified competition for mobile capital diverts resources away from essential long-term investments crucial for knowledge-driven growth. Even after controlling for economic and institutional factors, a one standard deviation increase in competition corresponds to an average decline of 25% in per capita innovation investment. These findings highlight the unintended trade-off resulting from heightened competition and underscore the need for policy frameworks that promote localized flexibility while curbing uncoordinated competition that undermines innovation capacity. While fiscal decentralization aims to foster competitive governance, this study provides empirical evidence that short-term expenditure incentives often displace long-term innovation objectives without sufficient coordination. The insights contribute significant empirical evidence on the concealed costs of fiscal competition for regional development. Consequently, a re-evaluation of conventional perspectives on decentralization and competition is warranted, emphasizing the importance of developing cooperative policy solutions that strike a delicate balance between decentralized decision autonomy and strategic coordination. Adopting such an approach is essential to fully leverage the advantages of competitive governance while simultaneously nurturing innovation ecosystems.
  • Publisher: San Francisco, CA USA: Public Library of Science
  • Language: English
  • Identifier: ISSN: 1932-6203
    EISSN: 1932-6203
    DOI: 10.1371/journal.pone.0293158
  • Source: PLoS (Open access)
    Geneva Foundation Free Medical Journals at publisher websites
    AUTh Library subscriptions: ProQuest Central
    PubMed Central
    DOAJ Directory of Open Access Journals
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