Digital economy spillover on government subsidies: evidence from China

This research integrates digital economy spillover (DES) into a tripartite game model involving stages of digital service deployment, digital infrastructure development, and government financial incentives to examine how DES influences government subsidies. Employing data from 31 Chinese provinces, we developed an inclusive DES index to empirically explore its effect on government subsidies and underlying mechanisms. The findings reveal that: (1) In competitive digital infrastructure scenarios, the most effective government policy is to subsidize corporate digital infrastructure, with subsidies increasing as DES rises. In cooperative infrastructure settings, subsidies are unnecessary, as firms reach optimal equilibrium independently, making DES irrelevant to subsidy decisions. (2) A positive and significant correlation exists between DES and government subsidies, supporting both theoretical and game-theoretical predictions. This highlights DES as a crucial factor in shaping government subsidies and advancing corporate digital development. (3) Industry structure acts as a key intermediary factor in the dynamics between DES and government subsidies. By encouraging the upgrade and minimization of distortions within the industrial structure, DES effectively motivates governments to increase subsidies. This research elucidates the intricate effects of DES on government subsidies, aiding understanding of the digital economy's dynamics.