The Korean Journal of Economic Studies
A Study on Sustainability of Local Public Expenditures in South Korea Based on Analysis of Long-run Causality Tests
Beung-Ky Oh (Gwangju-Jeonnam Research Institute)Year 2021Vol. 69No. 2
AbstractRecently, there have raised concerns about the sustainability of the public finance after the spread of the Covid-19 outbreak. In the empirical contrast,this study tests long-run Granger causality between GDP and public expenditures (national and local) for 1967 to 2018 in South Korea. The results obtained lead us to significant evidence for Wagner’s law throughout the whole period analyzed, which means GDP or GRDP influences public expenditures growth. Moreover, this paper finds more cases of significant causality of Wagner’s law at local level rather than national level. These findings underline the importance of sustainable public finances that consider the uncertainties of future finances with weak financial abilities of local governments.