Year of Publication

2016

College

Martin School of Public Policy and Administration

Committee Chair

Dr. Nicolai Petrovsky

Executive Summary

Declining fertility is one of the top policy issues in South Korea. To increase the birth rate, the government of South Korea has been enacting several fertility encouragement polices. Although almost all of the birth encouragement policies have been led by the central government, a childbirth grant program was developed by primary local governments themselves. The grant levels vary significantly between local governments.

I examine what explains the differences in the childbirth grant level by analyzing twelve years (2004-2015) of panel data with a fixed-effects model. Prior studies indicate that the extent of demand for a policy and the availability of financial resources are the main factors influencing welfare policies of South Korean local governments. From this point of view, my study focuses on population fluctuation and fiscal capacity of the local governments as the primary explanatory variables while including several socio-economic and political factors as control variables.

According to my estimation results, population change has a statistically significant impact on the grant level (generosity of the grants) offered by primary local governments in the provinces while it has no significant impact in the metropolitan cites. By contrast, the fiscal capacity has a subtle impact only on the grant levels of the municipalities in the metropolitan cities. Interestingly, the grant level of nearby local governments has a positive effect both in the provinces and metropolitan cities.

The results indicate the local governments in the provinces respond more sensitively to population change regardless of their fiscal capacity. Most provinces have more small municipalities facing a shrinking population compared to metropolitan cities. While the stated goal of childbirth grants is increasing births, a competition among local governments not to lose younger people to nearby local governments contributes to increasing childbirth grants.

This suggests the central government intervene in the childbirth grant policy of local governments to alleviate financial burden on the small and poor local governments as well as to increase the birth rate.

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