Introduction

Compared to the central government, local governments have to allocate limited financial resources to different programmes under a high level of resource constraints. For instance, at the provincial government level, fiscal independence has remained below 40 per cent in Korea since 2008 (KOSIS, 2018). Due to the difficulties associated with these financial constraints, efficient management of public expenditure is critical to effective decision making, especially at the local government level.

Cost-benefit analysis has been commonly used as an analytical tool for decision making in the public sector, including both the central government and local governments (Fuguitt and Wolcox, 1999; Weimer, 2009). Analytical information obtained from cost-benefit analysis is assumed to improve the fairness and efficiency of budget allocation. On the other hand, analytic information is costly, incomplete and usually fails to incorporate political factors and the multidimensional goals of public programmes (Wildavsky, 1966).

This scepticism toward the analytical approach is amplified in light of the view that local governments lack policymaking capacity compared to the central government. The pessimistic view of local governments results in support for central government intervention in local government decision making (Warner, 2010), which reverses the trend of decentralisation. However, there are many definitions of local government ‘capacity’ (Rapp and Patitucci, 1976; Gargan, 1981) ranging from financial capacity (Warner, 2010, p 146) to managerial capacity of human and other administrative resources (Hou et al, 2003). In this chapter, we narrow our discussion on local government capacity to specifically refer to methods of systematic policy analysis for public investment.

This chapter analyses a case that demonstrates how the systematic analysis of public investment triggers comprehensive behavioural changes in bureaucrats, policy analysts, politicians and citizens. The example we analysed is local government feasibility studies (LFS), which are a variant of the central government's preliminary feasibility studies (PFS). PFS are recognised as an innovative form of policy analysis adopted by the central government in Korea in 1999. PFS refers to an ex-ante evaluation of proposed investment projects that involve central government investment of greater than $50 million.

Ever since the adoption of PFS, policymakers have debated the accuracy of the analysis and its utilisation in actual investment decisions, which are profoundly affected by political interests. Nevertheless, PFS are regarded as part of a successful analytical system. Accordingly, local governments have expressed a willingness to adopt PFS.