(An) empirical analysis on the local expenditure

Abstract

In Korea during past 25 years demand for administration is increased. But most of public needs are satisfied by central government. By 1987 local selfgovernment shall be executed and it is suggested that local finance should be improved. To be successful local self government must sustain stable revenue sources. Many studies about local finance and local government are focused on local selfreliance ratio and local revenue. But even though local expenditure is small its expenditure should be practiced reasonably. This paper focuses on local expenditures. In estimating expenditure equation of Korean local government we use city and county as unit of analysis estimated expenditures are administration, welfare, industry, utility, defense, other and sum of these six expenditures. There are many studies about the local finance of Korea. These studies are concentrated on the revenue side because the size and revenue structure have many problems which are the serious barriers to the operation of self government. We reviewed several studies which tried to construct and estimate the demand equation of local services. The demand models of public goods have more problems than those of market goods because the prices of former cannot be identified. Additionaly, the public goods are different from market goods having the characteristics of joint consumption and non-rivalrity etc.. The demand models of public services assumed that the preference of people is well revealed by local self government and local election. If these don``t exist or the preference is not reflected upon local expenditure, the demand models have serious defects. Though the preference is well reflected in developed countries, the lack of this condition make it hard to apply such demand equation to our country. However, even in a more developed countries, one cannot say that the preference of public goods is revealed as the same as that of private goods. Thus the problem of preference revelation is that o...