Is participatory budgeting a driving force behind excessive social welfare spending?

ABSTRACT

Participatory Budgeting (PB) allows citizens to directly influence public fund allocation, often enhancing poverty reduction and administrative efficiency. This study explores PB’s impact on social welfare spending in 214 Korean municipalities, identifying a significant increase in such expenditures post-PB adoption. The research highlights a potential overemphasis on social welfare spending due to PB, exceeding levels justified by socio-economic, political, and fiscal factors. It also shows that legislative checks, political pressures on mayors, and diverse political orientations can counterbalance the spending surge. The study cautions against a PB’s disproportionate focus on social welfare, which might neglect other government functions.

EVIDENCE FOR PRACTICE

Participatory Budgeting (PB) carries the risk of excessive social welfare spending, potentially overshadowing other government priorities. To ensure a balanced and fiscally sustainable budgetary process, policymakers and practitioners should implement political checks and balances alongside PB initiatives. Striving for inclusiveness, diverse representation, and maintaining fiscal responsibility within PB programs are crucial for optimizing resource allocation and avoiding skewed government expenditure.

KEYWORDS:

• Participatory budgeting
• social welfare spending
• political competition
• check and balances

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Two important groups of the socially disadvantaged in the referenced study (Kwon 2015) are low-income people and the disabled. People with incomes below the minimum cost of living announced by the government each year receives monetary aid from the government (National Basic Living Security System, NBLSS). In 2015, recipients of the NBLSS were 3.8% and the disabled were 4.8% of population. The simple addition of low-income people and the disabled is 10% of population while they represent 22% in PB council.

2. When we divide our sample period into two parts (2011–2012 and 2013–2014), the results indicate that the effect of PB adoption is significant in a one-tailed test during the period of 2011–2012, and even more strongly significant during the period of 2013–2014. The stronger effect of PB could be attributed to a time lag in recognizing the impact of the policy on budget decisions. This is because the implementation of PB requires the institutionalization of engagement among various stakeholders, including administrative officials, legislators, council members, and others.

3. One may argue that social spending is too low in Korea. Hence, the increase of social spending is a positive effect of PB, leading social spending to an optimal level. The average proportion of social welfare spending over total budget expenditures in our sample municipalities is approximately 30%. In the United States, approximately 23% of local governments’ expenditures were allocated to public welfare in 2020 (Urban Institute 2023). In other countries, the proportions of social expenditures as a share of total subnational expenditures are as follows: Austria at 14.5%, Belgium at 10.6%, Germany at 27.0%, and Spain at 1.9% (OECD 2018). Considering that Korean municipalities have relatively high levels of social welfare spending compared to other subnational governments, it is challenging to interpret our findings that PB leads to an increase in social spending beyond justifiable levels as a positive effect of PB.

4. Throughout our analyses in Tables 4–6, we observe high explanatory powers due to the inclusion of municipal fixed effects. Especially, the explanatory power of the AbnormalSocial model has dramatically decreased without the fixed effects, indicating that the excessive social expenditures are mostly driven by unobservable municipal-specific factors. This further supports the need to include municipal fixed effects when predicting the social expenditures of municipalities.