The Korea Local Administration Review

The purpose of this article is to offer an analysis of dynamic effect of local government current expenditure on local economy and determinant factors of that expenditure. The poly-nominal distributed lag model and the local demand function for current expenditure were estimated by using panel data. The panel unit root tests and panel cointegration tests were performed before the estimations. The result of analysis showed that the local public investment expenditure have played an important role in the long-term growth of local economies, but the local public current expenditure have affected the local economies only in short-term. And the growth of local income, local tax, grant-in-aid and local population has been led the increase of current expenditure of local government. Moreover, the current expenditure has been increased its level since 1997.