Collusion and Government Size in Korea
Decentralization is argued to increase the efficiency of local expenditures. And it is important that competition
among local governments produces efficient distribution of local governments. The Leviathan and collusion hypotheses are
tools that Competition among local governments and its implication for local government size are best illustrated. The former
explains that decentralization induces smaller government size by competition. The latter describes that the intergovernmental
transfers make greater government sizes. This paper is trying to test both hypotheses to examine how the fiscal structure
influences the local government size influenced by a degree of competition among themselves. The results show that the
Leviathan and collusion hypotheses are accepted statistically. It can be support for the Leviathan hypothesis that competition
between local governments contribute to decreases in local government size as measured by expenditure. And the
collusion-inducing effect of intergovernmental transfers dominate the competition-inducing effect.
Index Terms- Collusion hypothesis, Intergovernmental transfers, Leviathan hypothesis.