Effects of intergovernmental fiscal transfers on technological innovation in China

Abstract

Purpose The purpose of this paper is to analyze whether and how intergovernmental fiscal transfers (IFTs) affect technological innovation. Design/methodology/approach China’s provincial panel data from 2007 to 2019 are used in an empirical study to examine the effect of IFTs on technological innovation and the role of fiscal spending policy in the relationship between the two by using the spatial Durbin model. Findings Results show an evident spatial correlation for the effect of IFTs on technological innovation, indicating that IFTs have a significant negative influence on technological innovation in local and surrounding regions. IFTs also inhibit technological innovation by negatively affecting science and technology spending and education spending. Research limitations/implications These findings can aid policymakers in advancing technological innovation by improving the system of fiscal transfers and optimizing the structure of fiscal spending. Originality/value Although the determinants of technological innovation have been analyzed, no studies have investigated the effect of IFTs on technological innovation. Thus, this paper aims to address this gap.