Does Fiscal Decentralization Influence on Management Efficiency of Country Innovative Development?

Ihor Molotok1
1. Sumy State University (Ukraine)
54 - 62
Cite as:
Molotok, I. (2020). Does Fiscal Decentralization Influence on Management Efficiency of Country Innovative Development? Marketing and Management of Innovations, 1, 54-62.


This paper summarizes the arguments and counterarguments within the scientific discussion on the influence of fiscal decentralization measures on the management of innovative country development. The main purpose of the research is to test the hypothesis that expenditure and revenue decentralizations have a positive impact on the management of innovative country development. Testing the hypothesis considers realization of panel data regression analysis, and consists of several stages, such as: 1) elimination of control variables multicollinearity based on the correlation analysis; 2) identification of the regression model specification (fixed or random effects model) with the help of Hausman test; 3) realization of the regression analysis and characteristic of its results (confirmation or rejection of the hypothesis). It also should be noted that country sample consists of 12 unitary European countries (Czech Republic, Denmark, Estonia, France, Hungary, Italy, Latvia, Lithuania, Poland, Slovak Republic, Slovenia, and Ukraine). Time horizon – 2008-2018. Global Innovation Index is a measure of innovative country development. At the same time, the ratio of local budget revenue to consolidated budget revenue, the rate of domestic budget expenditure to consolidated budget expenditure, the proportion of local budget tax revenue to gross local budget revenue are measures of fiscal decentralization in the research. There are also selected a set of control variables that often used in economic growth models and reflect macroeconomic perspectives of country development. However, the practical realization of the stages, as mentioned above, allow identifying that fixed effect specification of the model is more appropriate in all three cases (for three different measures of fiscal decentralization). Panel data regression analysis allows confirming the hypothesis on the positive impact of revenue fiscal decentralization and the negative impact of expenditure decentralization on innovative country development. In turn, there is no statistically significant cohesion between ratio of local budget tax revenue to gross local budget revenue and Global Innovation Index. These findings in terms of fiscal decentralization reform might be considered in order to ensure a balance between power (expenditures) redistribution from central to sub-central governments and local budget financial capacity. While in terms of innovative country development, it should be considered that the lack of local budget financial resources to cover all redistributed from central government level powers makes it impossible to invest in the development of innovation. However, the increase of local government financial capacity creates opportunities not just for essential functions financing but also advanced features investment such as innovative development. 

fiscal decentralization, innovation development, local budget expenditures, local budget revenue, local community.

  1. Abdalla, M. (2018). The Role of Regional Planning in Achieving Economic Development and Social Justice In Sudan. SocioEconomic Challenges, 4(2), 101-113. [Google Scholar] [CrossRef]
  2. Aghasiev, I., Pavlikha, N., & Riabushenko, N. (2018). Gender-oriented Budgeting as a Democratic Practice during a Self-Government Reform: Ukrainian Experience. Business Ethics and Leadership, 2(3), 21-33. [Google Scholar] [CrossRef]
  3. Agnihotri, An., & Arora, S. (2019). Study of Linkages Between Outward Foreign Direct Investment (OFDI) and Domestic Economic Growth: an Indian Perspective. Financial Markets, Institutions and Risks, 3(1), 43-49. [Google Scholar] [CrossRef]
  4. Am Marcel, D. T. (2019). Impact of the Foreign Direct Investment on Economic growth on the Re-public of Benin. Financial Markets, Institutions and Risks, 3(2), 69-78. [Google Scholar][CrossRef]
  5. Chygryn, O., Petrushenko, Y., Vysochyna, A. & Vorontsova, A. (2018). Assessment of Fiscal Decentralization Influence on Social and Economic Development. Montenegrin Journal of Economics, 14 (4), 69-84. [Google Scholar] [CrossRef]
  6. Colombo, D. G.; Martinez-Vazquez, J. (2019). Fiscal Decentralization and Public Investment in Innovation: A Country Panel Analysis. Publius: The Journal of Federalism. [Google Scholar][CrossRef]
  7. Global Innovation Index Reports (2019). Retrieved from
  8. Kamara, R. D., Leonard, S., & Haines, R. (2017). Enhancing the capabilities of municipalities for local economic development through skills training. SocioEconomic Challenges, 1(4), 35-44. [Google Scholar]
  9. Kouassi, K. B. (2018). Public Spending and Economic Growth in Developing Countries: a Synthesis. Financial Markets, Institutions and Risks, 2(2), 22-30. [Google Scholar] [CrossRef]
  10. Kuzior, A., Sobotka, B., Filipenko, А., & Kuzior, P. (2019). Marketing communications of administrative organs of local governance and local community. Marketing and Management of Innovations, 2, 314-325. [Google Scholar] [CrossRef]
  11. Liu, J.; Hu, X.; & Tang, H. (2016). Fiscal decentralization and regional financial efficiency: An empirical analysis of spatial Durbin model. Discrete Dynamics in Nature and Society, 2016, 1-14. [Google Scholar] [CrossRef]
  12. OECD Fiscal Decentralisation Database (2020). Retrieved from
  13. Pilia, G. (2017). Estonia and Lithuania in transition: A compared analysis of the change and its costs and benefits. Business Ethics and Leadership, 1(2), 12-19. [Google Scholar] [CrossRef]
  14. Strumpf, K. S. (1999). Does Government Decentralization Increase Policy Innovation? Available atSSRN 168210. [Google Scholar] [CrossRef]
  15. Taylor, M. Z. (2007). Political decentralization and technological innovation: testing the innovative advantages of decentralized states. Review of Policy Research, 24(3), 231-257. [Google Scholar] [CrossRef]
  16. Tinghua, Yu. (2011). Innovation and Fiscal Decentralization in Transitional Economies. Retrieved from
  17. Vasylieva, T. A., Harust, Y. V., Vinnichenko, N. V., & Vysochyna, A. V. (2018). Optimization of the financial decentralization level as an instrument for the country’s innovative economic development regulation. Marketing and Management of Innovations, 4, 382-391. [Google Scholar]
  18. World Bank DataBank (2020) Retrieved from
  19. Yang, S., Li, Z., & Li, J. (2020). Fiscal decentralization, preference for government innovation and city innovation. Chinese Management Studies. [Google Scholar] [CrossRef]
  20. Yushkov, A. (2015). Fiscal decentralization and regional economic growth: Theory, empirics, and the Russian experience. Russian Journal of Economics, 1(4), 404-418. [Google Scholar][CrossRef]