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Political budget cycle and the alignment effect: Evidence from South Korea

Author

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  • Lee, Dongwon
  • Min, Sujin
  • Park, Sangwon

Abstract

This study examines the effect of political alignment on the political budget cycle in multi-level local governments (municipal and regional governments). The central government may increase transfers to politically unaligned municipalities before local elections if (1) these municipalities are part of politically aligned regions and (2) the alignment of regional incumbents determines the political fate of the president. To formalize this hypothesis, we present a simple political agency model of multi-level governments. Using data from 226 Korean municipalities within 16 regions, and a regression discontinuity design, we find that, during local election years, the central government increases discretionary subsidies to municipalities that are part of aligned regions. In particular, subsidies increase significantly before local elections in unaligned municipalities if they are located in aligned regions. Finally, an increase in subsidies increases the regional vote share obtained by the ruling party.

Suggested Citation

  • Lee, Dongwon & Min, Sujin & Park, Sangwon, 2024. "Political budget cycle and the alignment effect: Evidence from South Korea," European Journal of Political Economy, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:poleco:v:81:y:2024:i:c:s0176268023001295
    DOI: 10.1016/j.ejpoleco.2023.102485
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    More about this item

    Keywords

    Political budget cycle; Political alignment; Local elections; Intergovernmental transfers; Multi-level local governments;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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