Asymmetry in the fly-paper effect of the national subsidy in Korea

Abstract

ABSTRACTNowadays, Korean central government has concentrated increasing attention on welfare policy. Welfare payment which is delivered by local government relies on the national subsidy. The national subsidy, however, is a kind of conditional grants which is needed to match some financial resource of local governments. For this reason, the fiscal conditions of local governments may become worse off, as the amount of national subsidy increases. This phenomenon is called the ‘fly-paper effect’, and may be caused inefficiency of the intergovernmental grants. In this paper, we test whether there is any fly-paper effect in the national subsidy and, then, the asymmetry in the fly-paper effect.