• Corpus ID: 30404743

Innovation and Fiscal Decentralization in Transitional Economies

@inproceedings{Yu2011InnovationAF,
  title={Innovation and Fiscal Decentralization in Transitional Economies},
  author={Ting-Fai Yu},
  year={2011}
}

• Ting-Fai Yu
• Published 2011
• Economics, Political Science

In this paper, I build a theoretical model of the innovation decision in transitional economies. Innovation often erodes the economic interests of certain interest groups. To block innovation, an interest group can choose to overthrow the central ruler who adopts innovation policy, or to bribe the local leader who implements the innovation policy. Therefore, for the central ruler, innovation has two major costs. One derives from the overthrow effect imposed by the interest group, and the other derives from tax revenue share as an incentive for the local leader to implement the innovation policy. The central ruler tends to innovation when the interest group has relatively small political power; the economic rents erosion for the interest group is relatively small; there is a relatively large improvement of production under innovation; and the beginning technology level is relatively high. In a politically centralized regime, the cost of innovation decreases and therefore the ruler is more likely to adopt the innovation policy. When the bribe from the interest group is not credible, the central ruler is more likely to adopt the innovation policy. ∗Email [e-mail]