Local government competition and regional innovation efficiency: From the perspective of China-style fiscal federalism

Abstract Through data envelope analysis, this article finds that the innovation efficiency of China’s three regions is shrinking. From the perspective of Chinese fiscal federalism, we try to study the influence of two forms of local government competition (vertical competition and horizontal competition) on regional innovation efficiency. We find that both fiscal decentralization and competition among local governments effectively promote regional innovation efficiency, while there is no effective interaction mechanism between them. The attitude of local governments toward scientific and technological (S&T) activities also directly affects the efficiency of regional innovation. From the top of policy design, in order to establish a national innovation system and improve innovation efficiency, appropriate fiscal autonomy should be granted to local governments. Suggestions include that local governments should strengthen S&T activities and cooperate with each other, which is an important S&T policy guidance for central government in the future.