Applying voucher markets in rural local municipalities: fiscal capacity and competition in the Korean elderly program

Abstract

Vouchers increase the level of social services offered at local levels. This results in new management for local governments and enhancing competition in remote areas becomes a challenge. This study explores whether constraints on the fiscal capacity of local governments relates to the promotion of provider-driven competition, which is different between urban and rural municipalities. As the elderly voucher program was established in 2007 in Korea, the analysis presents empirical evidence from a transitional perspective. The results show that low fiscal capacity of local governments promotes competition and there is no difference in the impact between rural and urban municipalities. The finding implies that uneven fiscal capacity may not exacerbate a deterioration of the provision to secure competition.