Is fiscal decentralization a seasonal illusion? Evidence from Korean local governments

Park, HyungGun; Park, Ji‐Hyung

doi:10.1080/17516234.2022.2078467

Cited by 2 publications

(2 citation statements)

References 31 publications

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“…By focusing on improving the quality of public services such as education, healthcare, and public safety, local governments can attract residents and businesses seeking an enhanced quality of life. Lastly, collaboration with the private sector through public-private partnerships or by attracting private investments in infrastructure projects, economic zones, or urban revitalization initiatives can further contribute to setting the jurisdiction apart and creating a competitive edge [7,[145][146][147][148][149].…”

Section: Fiscal Decentralization and Local Governmentsmentioning

confidence: 99%

“…The phenomenon of fiscal competition and its economic implications has been extensively examined in the literature. The traditional perspective suggests that competition among subnational jurisdictions in terms of taxes and expenditures may have negative effects, leading to sub-optimally low levels of public spending [ 6 , 7 ]. However, subsequent scholarly work argued that restraining governments could actually improve efficiency, with competition serving as a disciplinary mechanism.…”

Section: Introductionmentioning

confidence: 99%

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Balancing fiscal expenditure competition and long-term innovation investment: Exploring trade-offs and policy implications for local governments

Wenjuan,

Zhao

2023

PLoS ONE

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The mobility of economic factors across jurisdictions has led to increased fiscal competition among decentralized subnational governments. This study examines the relationship between fiscal competition and long-term investment in innovation at the local government level. Panel data analysis, encompassing expenditures, taxes, and innovation inputs from 18 municipalities over a 10-year period, is employed using fixed effects regression. The results reveal a negative correlation between fiscal competition and expenditure on innovation, indicating that intensified competition for mobile capital diverts resources away from essential long-term investments crucial for knowledge-driven growth. Even after controlling for economic and institutional factors, a one standard deviation increase in competition corresponds to an average decline of 25% in per capita innovation investment. These findings highlight the unintended trade-off resulting from heightened competition and underscore the need for policy frameworks that promote localized flexibility while curbing uncoordinated competition that undermines innovation capacity. While fiscal decentralization aims to foster competitive governance, this study provides empirical evidence that short-term expenditure incentives often displace long-term innovation objectives without sufficient coordination. The insights contribute significant empirical evidence on the concealed costs of fiscal competition for regional development. Consequently, a re-evaluation of conventional perspectives on decentralization and competition is warranted, emphasizing the importance of developing cooperative policy solutions that strike a delicate balance between decentralized decision autonomy and strategic coordination. Adopting such an approach is essential to fully leverage the advantages of competitive governance while simultaneously nurturing innovation ecosystems.

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