Determinants of capital spending in local governments of South Korea

Abstract

ABSTRACT Studies on capital expenditure barely exist in S. Korea, although Korean local governments make substantial capital expenditure on infrastructure. To examine the determinants of capital spending in S. Korea, we conducted the system generalized method of moments estimation with panel data of 16 Korean local governments over the period 2002–2020. The model of this study, focusing on resource availability and political dynamics, provides strong support to the capital spending hypotheses. Specifically, our research reveals that capital expenditures are significantly associated with resource availability (general taxes earmarked for capital projects, intergovernmental grants, and local bonds) and political factors (elections). We also found that institutional change in the form of the adoption of the ceiling bond system is positively associated with local capital expenditure.