Vertical Fiscal Imbalance, Public Expenditure Bias and Regional Innovation Capability

Based on the typical facts of vertical fiscal imbalance under Chinese-style fiscal decentralization, this paper provides a framework, and analyzes the internal action paths and impact effects between the relationships of vertical fiscal imbalance, regional innovation capability and public expenditure bias. The empirical study of multidimensional impacts of vertical fiscal imbalance on regional innovation capability shows that the vertical fiscal imbalance is not conducive to regional innovation and will hinder the improvement of regional innovation capability through public expenditure bias. Public finance is believed to be the foundation and an important pillar of state governance. The public financial system is the key to improve regional innovation capacity and achieve high-quality development of China's local economy. A scientific fiscal system and a balanced central-local fiscal relationship can be helpful to promote the efficiency of regional innovation, realize the transformation of economic drivers, and improve economic structure. As economic public goods with positive externalities and spatial spillovers, regional innovation is hindered by the mismatch between local fiscal revenue and expenditure, especially the vertical fiscal imbalance under Chinese-style fiscal decentralization.