Basic Report

The President Lee Myungbak's Government has emphasized on the efficiency inpublic sector to provide better services with a given resources. As a means ofimproving efficiency, in particular, budget-saving programs have been propelled bycentral government as well as local governments. According to the Ministry of PublicAdministration and Security, local governments are planning to save 10% of theirbudgets, amounted twelve trillion Won in two years. However, the budget-savingprograms are not well-prepared, and thus, could have many problems. Therefore, thepurpose of this study is to help improve the spending efficiency of local governmentsby many different approaches.First of all, in this study we measure the relative efficiency of Korean localgovernments in a non-parametric framework approach using Data EnvelopmentAnalysis. This allows assessing the extent of local spending that seems to be wastedrelative to the best-practice frontier. Our results suggest that local governments incapital area, with higher own-revenue ratio, and with larger population could achievebetter performance. Efficiency scores are afterwards explained by means of Tobitanalysis with relevant explanatory variables.We also classify the sources of inefficient spendings in local governments, andsuggest the ways of efficiency improvements. Local governments need to be morewilling to learn from the experience of others and to work jointly to achieveefficiencies. The large number of small local governments in Korea means that scaleeconomies are difficult to exploit and the policy options for overcoming this problemare discussed. Finally, we suggest that like the efficiency gains program in the UnitedKingdom, a new efficiency program for local governments has to be introducedbecause the current budget-saving program does not sufficiently reflect the basicconcept of government efficiency and thus may result in a budget-cutting program.