Fragmented Budget Systems and Fiscal Performance: Evidence from South Korea
Fragmented Budget Systems and Fiscal Performance: Evidence from South Korea
This paper empirically examines how a fragmented budget system affects fiscal deficits, focusing on the role of fiscal autonomy in terms of own-source revenue, expenditure flexibility, and intertemporal budget adjustment. Greater revenue autonomy implies that the fungibility of earmarked revenues is not the primary determinant of fiscal performance. Using a panel dataset of Korea's consolidated central government special accounts, we test the hypothesis that fiscal autonomy enhances fiscal stability.
The results show that, in accounts with "sticky" earmarked revenues, predetermined revenue sources contribute to maintaining budget balance by supporting both revenue generation and expenditure growth. In contrast, in accounts with "fungible" earmarked revenues, the principal effect of earmarking is to reduce political resistance to taxation, thereby strengthening revenue-raising capacity. We further find that fiscal autonomy is most effective in promoting fiscal discipline when budgetary authority is shared between the finance minister and the spending minister under an institutional framework of effective checks and balances. (2026, forthcoming)
Fragmented Budget Systems and Fiscal Performance: Evidence from South Korea
This paper empirically examines how a fragmented budget system affects fiscal deficits, focusing on the role of fiscal autonomy in terms of own-source revenue, expenditure flexibility, and intertemporal budget adjustment. Greater revenue autonomy implies that the fungibility of earmarked revenues is not the primary determinant of fiscal performance. Using a panel dataset of Korea's consolidated central government special accounts, we test the hypothesis that fiscal autonomy enhances fiscal stability.
The results show that, in accounts with "sticky" earmarked revenues, predetermined revenue sources contribute to maintaining budget balance by supporting both revenue generation and expenditure growth. In contrast, in accounts with "fungible" earmarked revenues, the principal effect of earmarking is to reduce political resistance to taxation, thereby strengthening revenue-raising capacity. We further find that fiscal autonomy is most effective in promoting fiscal discipline when budgetary authority is shared between the finance minister and the spending minister under an institutional framework of effective checks and balances. (2026, forthcoming)