Authors : Seung-Jun Park(Daegu University), Dae Chul Kim(Daegu Gyeongbuk Development Institute)

The purpose of this study is to investigate the factors affecting the ratio of local governments expenditures based on 16 Korean state government panel data. Also, we employ ridge regression analysis to solve the multicollinearity problem caused by many explanatory variables. Socio-economic factors including real GRDP, population, etc and government factors like local officials are turned out to be statistically significant determining on the level of local government expenditure. However, political factors are not statistically significant in log real local government expenditure model. These results imply that local governments should consider all the socio-economic, political and government factors to accurately identify the financial expenditure levels of them and need to establish the corresponding public policies.