The Korea Local Administration Review

This research is an analysis of the crowding-out effect of public serviceprovided by local autonomous entity based primarily on the study of Hwaseong.For the study, first, public service programs provided by Hwaseong CityCultural Foundation were categorized into three types: leisure-type,support-type for vulnerable social group, and education-type including selfimprovement. Then, the possibility of crowding out was examined for eachprogram, followed by a survey (consumer purchasing power and wants as themeasuring variables) conducted to test if each category demonstrates differentdegree of crowding-out effect. The result of survey indicated thatcrowding-out effect takes place in the order of education-type, leisure-type,and support-type, thus supporting the research hypothesis.According to survey results, residents in Hwaseong generally prefer thedirect distribution system as the most desirable method of supplying publicservices. However, the direct distribution system result in crowding-out effectand evenmore it lead to fiscal crisis of local autonomous entities due to heavyinvestments in facilities. Therefore, it is necessary to consider other alternativeplans such as indirect distribution system or market scheme based system inoder to prevent the crowding-out effect.This research points out problems cased by the consumer-focused publicservice programs and also suggests that negative effects on the producers, asthey are one of the major actors in the market, must be taken intoconsideration in the decision making process.
□ Keywords: public service, crowding-out effect, government failure, derivedexternalities, consumer purchasing power, consumption desire