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Fiscal decentralization and regional Innovation: Dual mechanisms of human capital mediation and financial development moderation

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  • Ren, Haixia
  • Xian, Zhe
  • Zhu, Baorong
  • Lin, Haiying

Abstract

Fiscal decentralization, as an institutional arrangement to adjust the relationship of financial power between the central and local governments, plays a key role in ensuring regional innovation levels and high-quality economic development. This paper is based on panel data from 31 provinces in China from 2010 to 2023. It empirically explores the impact and mechanism of fiscal decentralization on regional innovation through a bidirectional fixed effects model, mediation effect model, and moderation effect model. Research finds that fiscal decentralization has a significant innovation effect, which can notably enhance regional innovation levels, and this effect is more pronounced in eastern regions and provinces with higher economic development levels. Mechanism analysis shows that fiscal decentralization indirectly affects the improvement of regional innovation levels through human capital. Further analysis reveals that financial development plays a positive moderating role in the process of fiscal decentralization enhancing regional innovation levels, not only strengthening the direct effect of fiscal decentralization but also actively moderating the indirect effect of human capital on regional innovation. This article proposes policy recommendations from the aspects of optimizing the fiscal decentralization system, strengthening human capital investment, comprehensively promoting financial development, and enhancing policy support.

Suggested Citation

  • Ren, Haixia & Xian, Zhe & Zhu, Baorong & Lin, Haiying, 2025. "Fiscal decentralization and regional Innovation: Dual mechanisms of human capital mediation and financial development moderation," International Review of Economics & Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:reveco:v:102:y:2025:i:c:s1059056025005337
    DOI: 10.1016/j.iref.2025.104370
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    1. Liu, Zhouding & Jackson, Ana, 2026. "The interplay of technological innovation, human capital and civil liberties in advancing economic complexity and sustainable growth," Technology in Society, Elsevier, vol. 84(C).

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