Political Budget Cycle and the Alignment Effect in Multi-Level Local Governments : Evidence from South Korea

This study examines the effect of political alignment on the political budget cycle in multi-level local governments (municipal and regional governments). The central government may increase transfers to politically unaligned municipalities before local elections if (1) these municipalities are part of politically aligned regions and (2) the alignment of regional incumbents determines the political fate of the president. Using data from 226 Korean municipalities within 16 regional governments, we show that discretionary subsidies increase by approximately 13% before local elections in municipalities located in aligned regions. These electoral effects are larger for aligned municipalities located in aligned regions. Additionally, unaligned municipalities receive additional subsidies before elections if they are located in aligned regions. Finally, an increase in subsidies increases the regional vote share obtained by the ruling party