Basic Report

The purpose of this study is to forecast demographic changes and to estimate welfare finance projections for local governments. Although the population aging is a common feature in almost all the industrialized countries, the growth rate of the elderly over age 65 in Korea has never seen in world history. On the other hand, the total fertility rate in Korea is recorded as one of the lowest in the world. Therefore, this will lead to a rapid increase in welfare needs such as old aged people, basic livelihood recipients and disabled persons. In this study, we examine the trend of social expenditures in Korean local governments for last ten years and explore the statistical determinants of the share of social security in local government expenditure. To estimate future welfare needs of local governments, we first project 5 year population for each local government over the next ten years. Using the regression results and population projections, we forecast welfare needs such as the number of basic livelihood recipients and disabled persons. Results from the forecast show that while the number of elderly people will be increased from 5.1 million in 2008 to 7.0 million in 2018, the number of youth people will be decreased from 8.5 million in 2008 to 6.8 million in 2018. On the other hand, according to our estimation the ratio of basic livelihood recipients against population will be increased from 3.3% in 2008 to 4.9% in 2018 and the ratio of disabled persons will be increased from 5.6% in 2008 to 7.4% in 2018. The rapid increase in welfare needs is likely to affect the fiscal structure of local governments so that it is necessary to reform the structure of local revenue and expenditure. If local welfare expenditure is increasing with the growth rate of welfare needs, the local welfare spending in 2018 is expected to increase to 39.4trillion Won in 2018 from 24.1trillion Won in 2009. This imply that the share of welfare spending out of total expenditure in 2018 will be 28.7%, which is 11.2% point increase from 2009. Therefore, in response to the increase of welfare spending over the next ten years it may be necessary to cut the ratio of non-welfare spending or to expand the size of local governments' budget.