As the main participants in regional innovation capacity building, local governments' fiscal science and technology expenditures support basic research, major technological research and the transformation of innovation achievements, playing a role in reducing innovation risks, making up for market failures and enhancing regional innovation capabilities. This paper analyzes the current situation of central and local fiscal science and technology expenditures and the current situation of vertical fiscal imbalance in the three major regions, and then conducts an empirical study and empirical analysis on the impact of fiscal science and technology expenditures on regional innovation capabilities. The research finds that the promoting effect of local fiscal science and technology expenditure on the innovation capacity of the eastern and central regions is significantly greater than that of the western region. Basic research expenditure JCYJ and applied research expenditure YYYJ have a positive incentive effect on the improvement of regional innovation capacity, while technology research and development expenditure JSYJ has a negative effect on the improvement of regional innovation capacity. The vertical fiscal imbalance in the western region plays a significant negative moderating role in the improvement of regional innovation capacity by fiscal science and technology expenditure. Put forward policy opinions on optimizing the structure and scale of local fiscal science and technology expenditure, enhancing regional innovation capabilities, and optimizing the division of fiscal powers and expenditure responsibilities, as well as moderately reducing the level of vertical fiscal imbalance.