Fiscal Sustainability and Multi‑Mechanism Innovation‑Driven Long‑Term Economic Growth

Traditional macroeconomic growth models have long relied on factor accumulation, including labor expansion, capital investment, and resource exploitation, to explain economic expansion trajectories. This factor‑dependent growth paradigm inevitably faces diminishing marginal returns, resource depletion constraints, and environmental carrying capacity bottlenecks, making it unable to support sustained long‑term economic expansion for modern economies. The 2025 Nobel Prize in Economic Sciences systematically corrects the limitations of traditional growth theories by defining the internal logic of innovation‑driven economic growth and clarifying two core supporting pillars of continuous economic progress: the preconditions for technological progress to generate sustainable growth and the creative destruction mechanism that iterates industrial vitality.

From the perspective of fiscal economics, the realization of innovation‑driven growth cannot be separated from the constraint of fiscal sustainability and the multiplier effect of government fiscal expenditure. Fiscal policies shape the institutional environment for technological innovation, guide social capital allocation toward innovative industries, and balance the short‑term investment cost of innovation and long‑term economic return, forming a complete closed‑loop system for sustainable innovation growth. This article decomposes the theoretical mechanism of innovation‑driven growth, analyzes the fiscal constraint boundaries of innovative economic development, verifies practical growth logic through empirical theoretical cases, and proposes targeted optimization paths for fiscal policy matching innovation economic development.
 

1. Theoretical Deconstruction of Innovation‑Driven Sustainable Economic Growth

The core theoretical system of 2025 Nobel Economics Prize winners effectively breaks the static analysis framework of neoclassical economic growth theory and builds a dynamic iterative growth model centered on technological progress and creative destruction. Neoclassical growth theory regards technological progress as an exogenous variable and fails to explain the source and iterative mechanism of long‑term economic growth, resulting in inherent defects in guiding long‑term economic policy formulation. The research achievements of Joel Mokyr, Philippe Aghion, and Peter Howitt internalize technological innovation into the economic growth system, defining the essential logic of modern sustainable economic development.

Joel Mokyr’s research focuses on the preconditions for technological progress to drive sustained economic growth, tracing the origin of modern economic growth to the transformation of social ideology and the popularization of practical knowledge.

Based on decades of research on European economic history from 1750 to 1914, he proposes the core concepts of “industrial enlightenment” and “useful knowledge”, pointing out that pure technological invention cannot form economic growth momentum. Only when social groups form an open attitude toward new technologies, scientific knowledge can be continuously transformed into industrial practical technologies, and institutional and cultural environments can tolerate technological iteration and industrial change, can technological progress form continuous growth momentum. His research clarifies that sustainable innovation growth is not a single technical behavior but a systematic result of the coordination of knowledge iteration, cultural tolerance, and social institutional innovation.

Philippe Aghion and Peter Howitt supplement the dynamic iteration mechanism of innovation growth by constructing the Schumpeterian Growth paradigm centered on creative destruction. Different from traditional growth theories that emphasize incremental factor improvement, the creative destruction mechanism believes that economic growth is realized through the elimination of backward industries, outdated technologies, and inefficient production models by new innovative technologies and new industrial forms. This growth model is disruptive and iterative, which will trigger industrial restructuring and resource reallocation in the short term, but can continuously optimize the overall productivity level of the economy in the long term. The Schumpeterian growth paradigm has become the core analytical tool for contemporary economic growth policy design, providing theoretical support for governments to formulate industrial innovation policies, technological subsidy policies, and market competition regulation policies.

From the perspective of fiscal economics, the above innovation growth theories define new boundaries for government fiscal intervention in economic operations. Factor‑driven growth relies on government infrastructure investment and resource input subsidies, while innovation‑driven growth requires fiscal policies to focus on institutional supply, innovation environment construction, and risk sharing of technological research and development. The fiscal multiplier effect in the innovation economy is no longer reflected in short‑term GDP pull, but in long‑term total factor productivity improvement and sustainable economic potential release. At the same time, the high uncertainty and long return cycle of innovation activities also put forward higher requirements for fiscal sustainability, requiring governments to balance innovation investment expenditure and fiscal debt risks.
 

2. Fiscal Sustainability Constraints on Innovation Economic Development

Fiscal sustainability refers to the dynamic balance state of government fiscal revenue and expenditure within a long‑term cycle, that is, government public expenditure can form effective economic feedback, fiscal debt scale is controlled within a safe threshold, and fiscal policies can continuously support economic and social development without triggering systemic fiscal risks. Innovation‑driven economic growth is a long‑cycle, high‑investment, high‑risk economic model, which has completely different fiscal matching logic from traditional factor‑driven economic growth and puts forward rigid constraint conditions for fiscal sustainability.

First, innovation research and development investment has the characteristics of strong public attribute and long return cycle, which increases the short‑term fiscal expenditure pressure. Basic technological research, industrial public technology platform construction, and innovation talent training are typical public goods, with strong positive externalities and low private investment willingness. Governments need to bear the main investment cost through fiscal appropriation, tax incentives, and financial subsidies. Different from infrastructure investment that can form fixed asset income in the short term, basic innovation investment often requires 5 to 10 years or even longer technical accumulation to form industrial economic benefits. In the short term, a large number of fiscal expenditures are invested in innovation fields, which will compress the space of people's livelihood and infrastructure fiscal expenditure and expand the fiscal deficit scale in stages.

Second, the creative destruction mechanism of innovation economy brings uncertain fiscal revenue fluctuations. The industrial iteration brought by technological innovation will eliminate traditional high‑tax industries in batches in the short term, resulting in the decline of traditional fiscal tax sources. Emerging innovative industries are in the initial stage of development, with low profit scale and insufficient tax contribution capacity, and often enjoy fiscal tax reduction and exemption policies in the incubation period. This structural mismatch of fiscal revenue and expenditure will lead to short‑term fiscal revenue growth slowdown and expenditure growth acceleration, forming a fiscal sustainability pressure gap. If the government blindly expands fiscal leverage to support innovation investment without controlling the debt threshold, it will easily trigger implicit fiscal risks and restrict long‑term economic growth.

Third, the regional differentiation of innovation capability leads to unbalanced fiscal carrying capacity. Technological innovation resources, talent resources, and industrial foundation have obvious regional agglomeration characteristics. Developed regions with complete industrial chains and abundant innovation resources can quickly convert fiscal innovation investment into industrial benefits and form a positive cycle of fiscal revenue growth. In contrast, underdeveloped regions lack innovation supporting conditions, and fiscal innovation investment is difficult to form effective economic feedback, resulting in long‑term fiscal investment losses and increasing regional fiscal imbalances. This unbalanced fiscal carrying capacity further widens the regional economic development gap and restricts the overall coordinated development of the innovation‑driven economy.

The core of fiscal sustainability constraint on innovation economy is to require the government to abandon short‑term GDP‑oriented fiscal investment logic and build a long‑cycle fiscal evaluation system matching innovation growth. The fiscal multiplier effect of innovation investment is long‑term and cumulative. Reasonable innovation fiscal expenditure will continuously improve total factor productivity, expand high‑quality tax sources, and finally realize the dynamic balance of fiscal revenue and expenditure. Excessive short‑term fiscal austerity or blind leverage expansion will both destroy the innovation growth ecology and damage fiscal sustainability.
 

3. Empirical Case Analysis of Fiscal Policy Empowering Innovation‑Driven Growth

The practical application of the Schumpeterian growth paradigm and innovation precondition theory can be fully verified through the fiscal policy practice of major global economies in recent decades. By sorting out the fiscal operation logic of different countries in supporting technological innovation and industrial iteration, we can summarize the sustainable fiscal matching path of innovation‑driven economic growth and verify the interaction mechanism between fiscal multiplier effect, fiscal sustainability, and innovation growth.

European and American developed economies have long adhered to fiscal precision support for basic innovation, forming a mature innovation‑fiscal positive cycle system. Taking the technological progress of European industrialization as an example, as Mokyr’s research verified, the fundamental reason why Europe took the lead in completing industrialization and realizing sustained economic growth is the open social innovation environment and continuous public investment in basic knowledge popularization. In the modern stage, European countries continue to maintain fiscal investment in basic scientific research, with fiscal R&D expenditure accounting for more than 2% of GDP for a long time. The government uses special fiscal funds to support basic technological research with high uncertainty and long cycle, makes up for the market failure of private capital avoidance of basic research risks, and lays a knowledge foundation for industrial technological innovation. At the same time, European countries formulate differentiated fiscal tax policies for innovative enterprises, implement incremental tax incentives for R&D investment, and use fiscal leverage to guide social capital to gather in innovative industries, realizing the amplification of fiscal multiplier effect.

The United States’ fiscal policy practice fully reflects the creative destruction growth logic of Aghion and Howitt. The United States government does not adopt excessive industrial protection fiscal policies for traditional industries, but uses fiscal subsidy and tax adjustment means to accelerate the elimination of backward production capacity. For emerging technological innovation fields such as artificial intelligence, new energy, and biomedicine, the government increases fiscal investment intensity, builds national innovation platforms, and tolerates short‑term industrial structural unemployment and economic fluctuation caused by creative destruction. In terms of fiscal sustainability control, the United States balances innovation investment expenditure through long‑term fiscal budget adjustment, avoids short‑term massive debt expansion, and relies on the long‑term economic growth dividends brought by technological innovation to digest early fiscal investment costs. This fiscal operation mode effectively supports the continuous iteration of United States technological innovation and maintains the long‑term competitiveness of its economy.

Emerging economies have formed differentiated fiscal innovation support models based on their own fiscal sustainability conditions. Different from developed economies’ focus on basic research fiscal investment, emerging economies focus on fiscal support for applied technological innovation and industrial transformation. Through targeted fiscal subsidies for enterprise technological transformation, tax incentives for innovative product sales, and fiscal guarantees for innovation financing, they accelerate the transformation of existing technological achievements into economic benefits. This fiscal model has a short investment return cycle and low short‑term fiscal risk, which is in line with the fiscal sustainability threshold of emerging economies. However, the defect of this model is that the investment in basic innovation is insufficient, the preconditions for sustained technological progress are lacking, and it is easy to fall into the innovation bottleneck of relying on external technological introduction, resulting in limited long‑term economic growth potential.

Comprehensive empirical cases show that the optimal fiscal policy for innovation‑driven growth must adhere to the dual constraints of innovation growth law and fiscal sustainability. Excessive fiscal intervention will lead to inefficient innovation resource allocation and trigger fiscal risks; insufficient fiscal support will make it impossible to meet the preconditions for sustained technological progress and hinder the iterative development of creative destruction. Only precise, long‑cycle, and differentiated fiscal arrangements can maximize the multiplier effect of innovation fiscal expenditure and realize the coordinated development of technological innovation and sustainable economic growth.
 

4. Optimization Paths for Fiscal Policies Adapted to Innovation‑Driven Economic Growth

Combined with the theoretical mechanism of innovation‑driven growth and fiscal sustainability constraints, as well as global empirical practice, governments need to reconstruct the fiscal revenue and expenditure system, optimize the fiscal leverage allocation mechanism, and build a long‑term fiscal support system matching the creative destruction growth model, so as to resolve the contradiction between short‑term innovation fiscal expenditure pressure and long‑term fiscal sustainable development.

First, optimize the structural layout of fiscal innovation expenditure and improve the long‑term fiscal multiplier effect. Governments should adjust the traditional factor‑oriented fiscal investment structure, reduce inefficient fiscal expenditure on traditional industrial capacity expansion and resource development, and tilt fiscal funds toward basic scientific research, innovation talent training, and public innovation platform construction. In view of the public attribute of basic innovation, establish a long‑term stable fiscal appropriation mechanism to ensure continuous investment in basic knowledge and technological research, so as to meet the preconditions for sustained technological progress summarized in Mokyr’s research. For applied technological innovation and industrial iteration, adopt market‑oriented fiscal subsidy methods, reduce direct fiscal fund subsidies, and use tax incentives, innovation risk compensation, and fiscal interest discounts to leverage social capital to participate in innovation investment, amplifying the fiscal multiplier effect of limited fiscal funds.

Second, build a fiscal risk early warning system for innovation economy and lock the fiscal sustainability threshold. Aiming at the fiscal revenue fluctuation risk brought by creative destruction industrial iteration, establish a dynamic fiscal revenue and expenditure monitoring mechanism for innovative industries. Classify and evaluate the tax contribution cycle and industrial iteration risk of different innovative industries, formulate differentiated fiscal revenue adjustment policies, and make up for the short‑term fiscal revenue gap caused by the elimination of traditional industries through the growth dividends of emerging industries. Strictly control the scale of fiscal implicit debt derived from innovation investment, avoid excessive fiscal leverage expansion for short‑term innovation performance, and maintain the dynamic balance of long‑term fiscal revenue and expenditure.

Third, implement differentiated regional fiscal innovation policies and balance regional fiscal carrying capacity. For regions with complete innovation industrial chains and abundant talent resources, increase the proportion of fiscal basic research investment, support original technological innovation, and build regional innovation growth poles. For underdeveloped regions with weak innovation foundations, focus fiscal funds on technological transformation and industrial upgrading of traditional industries, introduce mature innovative technological achievements through fiscal incentives, and avoid blind investment in basic innovation that does not match regional endowments. Optimize the central and local fiscal expenditure division mechanism, transfer part of the central fiscal funds to support regional balanced innovation development, and alleviate the fiscal pressure of local innovation investment.

Fourth, improve the fiscal institutional environment to adapt to creative destruction. Formulate fiscal incentive policies conducive to market competition and technological iteration, abolish fiscal protection policies for backward industries and inefficient enterprises, and use fiscal means to accelerate the clearance of backward production capacity, so as to give full play to the creative destruction mechanism of innovation growth. At the same time, arrange special fiscal funds for industrial transformation and employment resettlement, buffer the short‑term social and economic impact of industrial iteration, and maintain the stable operation of the macro economy while realizing innovative industrial upgrading.
 

5. Conclusion

The innovation‑driven economic growth theory proposed by the 2025 Nobel Economics Prize winners reveals the essential law of modern long‑term economic growth, pointing out that sustained economic expansion relies on the double support of technological progress preconditions and creative destruction iterative mechanism. From the perspective of fiscal economics, innovation‑driven growth is essentially a systematic economic change supported by long‑term and sustainable fiscal policies. The traditional factor‑matching fiscal model can no longer adapt to the needs of innovative economic development, and unreasonable fiscal revenue and expenditure structures and excessive fiscal risk exposure will restrict the release of innovation growth dividends.

To empower high‑quality and sustainable economic growth through innovation, governments must take fiscal sustainability as the bottom line, optimize the structural allocation of fiscal innovation expenditure, maximize the long‑term multiplier effect of fiscal policies, build a differentiated regional fiscal support system, and improve the fiscal institutional environment for technological iteration and industrial innovation. The coordination of innovation theory and fiscal policy can effectively resolve the diminishing marginal return of traditional economic growth, realize the dynamic cycle of technological innovation, industrial upgrading, and fiscal sustainable development, and lay a solid foundation for long‑term stable economic growth.
 

Reference Block

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