Document Type

Article

Publication Date

10-1-2019

Abstract

This paper presents a first analysis of the potential link between the level of fiscal decentralization of a country and its public investment in innovation. We present a theoretical model where a ‘benevolent government’ invests in R&D aiming at maximizing net income, and R&D results are subject to interregional knowledge spillovers. The model predicts that decentralization leads to a lower level of public spending on innovation, and to a lower share of basic research in the government R&D budget. These hypotheses are empirically tested using country aggregate data. The results provide empirical support to the mentioned hypotheses, as we find evidence that higher levels of both expenditure and revenue decentralization are associated with a lower intensity of basic research in public R&D and with a lower level of R&D spending. The strength of the evidence, however, is weakened by the small sample size and shortcomings of the indicators used in the analysis.

Comments

To learn more about the Andrew Young School of Policy Studies and ICEPP, visit https://aysps.gsu.edu/ and https://icepp.gsu.edu.

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