The Local Government Expenditure in South Korea

Abstract

This paper examines the impact of government investment by the local government to stimulate the local economy and social security expenditure to protect the poor in the local economy. Unlike government expenditure by the central government, the local government expenditure may suffer from efficiency loss due to the absence of nationwide `planning' and `coordination.' This paper, using the Korean panel data, empirically show that the government investment to stimulate the local economy incurs efficiency loss due to `coordination failure,' while the social security expenditure does not. The result requires us a cautious and precise approach to 'decentralization of public finance unlike decentralization of political power.