Growth effects of fiscal decentralization with weak economic motivation: the case of South Korea

Soonae Park, Min-Gean Park and Kyung-Min Nam ()
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Soonae Park: Seoul National University
Min-Gean Park: KDI School of Public Policy and Management
Kyung-Min Nam: The University of Hong Kong

The Annals of Regional Science, 2019, vol. 63, issue 3, No 3, 399-436

Abstract: Abstract In this study, we apply an extended Granger causality test to examine whether fiscal decentralization in South Korea creates pro-growth effects. Our results show that the pro-growth effects in South Korea are significant at the provincial level, only from a revenue perspective. This result may suggest that strengthening local taxation power (revenue-centered decentralization) can better serve a local economic development goal than simply loosening use restrictions on inter-governmental transfers (expenditure-biased decentralization). At the city and county levels, however, no such pro-growth effects exist; we instead find partial evidence in support of the reverse causality–economic growth precedes revenue decentralization. This conflicting result seems to be associated with scale economies in public goods provision and the gap in administrative capacity between province- and lower-level local governments.

JEL-codes: E62 H71 H72 H73 H83 O23 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00168-019-00936-9

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