In local governments entering a period of fiscal contraction, significant changes can be expected in the innovation process. This paper reviews the existing literature on factors thought to be related to innovation in public service agencies, and takes a new perspective on the implications of the literature in times of fiscal contraction. Most factors previously found to be conducive to innovation are much less likely to be present in the new fiscal environment, suggesting that innovation will be stymied. However, some factors, such as the presence of performance gaps, the opportunity to change employees' reward structures to emphasize production efficiency, and reduced expectations of labor organizations, provide opportunities for creative administrators to bring about substantial innovation.
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