An Exploratory Study on the Classification of Mandatory and Discretionary Expenditures in Local Education Finance

This study examines the concepts of mandatory and discretionary expenditures as discussed in national and local government finance and proposes a new expenditure classification framework that reflects the unique spending structure of local education finance and intergovernmental fiscal relationships. To this end, the study reviews prior research and related indicators at both the national and local government levels and critically analyzes the limitations of the current mandatory and discretionary expenditure indicators used in local education finance analysis and mid-term fiscal planning. First, the analysis revealed that applying the Local Finance Act-derived general classification framework to education finance failed to account for the distinctive structural characteristics of local education spending. Second, the current approach, which classifies expenditures based solely on legal obligation, fails to capture rigid expenditures that are non-discretionary, leading to an overestimation of discretionary spending. Third, in the category of “other mandatory expenditures”, the application of inconsistent criteria across provincial and regional offices of education undermines the validity and consistency of regional comparisons based on these indicators. Accordingly, this study proposes a new three-tiered classification system to reflect the actual spending structure of local education finance more accurately. Expenditures with clearly mandated obligations and amounts under the law are defined as “legally mandated expenditures,” while those subject to autonomous adjustment at the level of provincial and regional offices of education are defined as “discretionary expenditures.” In addition, expenditures without legal mandates but with substantial constraints on adjustment are defined as “quasi-mandatory expenditures,” thereby providing a more realistic conceptual framework for analyzing the expenditure structure of local education finance.