Local Fiscal Pressure, Fiscal Science and Technology Expenditure and Innovation

Abstract

Innovation is the long-term driving force of economic development. Using the patent application data of 274 prefecture-level cities in China from 2009 to 2019, this paper examined the impact of local financial pressure on innovation from the perspective of fiscal science and technology spending. The research results show that local fiscal pressure significantly inhibits innovation, and this conclusion also passes the robustness test. Heterogeneity analysis shows that in inland cities, the effect of local fiscal pressure on innovation is significant, while in coastal cities, this inhibitory effect is not significant. The mechanism test found that local governments can weaken the inhibitory effect of local fiscal pressure on innovation by increasing fiscal science and technology expenditure. Further threshold effect test found that fiscal science and technology expenditures have a nonlinear characteristic of marginal increase in innovation, and increasing fiscal science and technology expenditures gradually weakened the inhibitory effect of fiscal pressure on innovation. The above findings provide new explanations and new evidence for promoting innovation from the perspective of fiscal spending.