Basic Report

This study focuses on factors affecting increases in liabilities of local governments with classification to local liabilities. With regard to this, this study examines the necessity to manage liabilities by types and characters.This study reviews the level of liabilities for understanding seriousness of liabilities in local governments. Prior research has studied management plans by not suggesting effective management plans to factors affecting increasing local liabilities but showing integrated liability index of local governments and local public enterprises with analyzing specific cases. With respect to effective management plans to local liabilities, first, this study classifies local liabilities into on-budget liabilities (general accounts, enterprises managed by local governments, funds) and off-budget liabilities (local public enterprises). Based on classification to liabilities, this study tries to understand fiscal soundness and stabilities by analyzing total liabilities, per capita liabilities, and ratio of liabilities by types and characters. Particularly, return of equity and the turnover of net worth are included in analysis of local public enterprises for reviewing management of assets and liabilities. Second, this study is to suggest management plans and policy implications to liabilities by analyzing whether demand factors, supply factors, fiscal institution factors, and political factors influence levels of liabilities in local governments using political market model. Third, this study tries to discusses limitations and improvements and reviews foreign cases regarding liability management. Furthermore, this study tries to suggest institutional framework about systematic liability management plans by reviewing foreign local bonds management plans. The analytical results are as followings. First, the result shows that liabilities of local public enterprises are more than those of local governments. Second, the result demonstrates that liabilities of public sewerage increase largely among public business managed by local governments. Liabilities of public sewerage increase drastically due to strengthening environmental standards; on the other hand, liabilities of public water supply facilities and public development does not increase largely, In terms of factors affecting increases in liabilities, the result shows that demand factors (GRDP and ratio of senior citizens), supply factors (self revenues, intergovernmental revenues, ratio of socal services, and liabilities of public enterprises), fiscal institutions, and political institutions (career of elected officials, and voting rate) influence total liabilities, debt ratio, current liabilities, non-current liabilities, and contingent liabilities. With respect to local public enterprises, demand factors, supply factors, fiscal institutions, and political institutions have influence on liabilities of local public enterprises. Also, local integrated liabilities are affected by demand, supply, fiscal, and political factors. The results of this study have policy implications as well. First, revenue structures of local governments should be improved with considering about poor revenue sources in local governments. Thus, expansion of lump-sum grants and reduction of tax exemption are needed. Second, reckless and inefficient financial management should be reformed by reducing reckless budgetary management and unreasonable large enterprises. Also, profligate expenditures should be suppressed and financial department should make full use of fiscal early warning system. Third, demands on public services should be controled accordance with changing socioeconomic conditions. Furthermore, management plans to demand and supply are needed with restricting borrowing conditions of local governments. Issue terms of local bonds and tax financing should be institutionalized as well. Finally, fiscal rules should be considered actively. Financial responsibility system should be introduced through enacting fiscal rules of discretionary expenditures and compulsory expenditures respectively.