Does fiscal decentralization affect local governments' strategic behaviours? Evidence from South Korea
Soyoung Park and
Sungchan Kim
Pacific Economic Review, 2023, vol. 28, issue 1, 124-141
Abstract:
Local governments tend to show strategic behaviours when making their spending decisions. However, few studies have examined strategic behaviours when promoting fiscal decentralization. Thus, this study empirically examines the presence of strategic interactions in expenditure decisions in South Korea as well as how fiscal decentralization affects those interactions, using a panel data set from 2010 to 2017. The results demonstrate that a local government mimics other governments' spending when those governments' residents share similar age demographics. Moreover, local governments in South Korea engage in strategic interactions as their expenditure side becomes more decentralized. However, local governments tend to demonstrate less isomorphic behaviour in welfare spending decisions when they have higher revenue decentralization. This is because local governments have no motive to emulate other welfare policies, as the central government delegates the provision of social services to local governments by providing grants with strings attached.
Date: 2023
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https://doi.org/10.1111/1468-0106.12388
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Persistent link: https://EconPapers.repec.org/RePEc:bla:pacecr:v:28:y:2023:i:1:p:124-141
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