The Korea Local Administration Review

This article proposes a new idea for making local governments work better. The authors assert that the best way to strengthen the effectiveness and competitiveness of local governments is to shape the policy baseline of local governments in such a way that they have a stronger policy preference for economic growth and production. Currently, local governments are strongly geared towards the distribution and consumption end of policy priorities continuum. This article is premised upon an understanding that structural transformation of local governments alone, which is not accompanying a change in the policy baseline, falls far short of upgrading local governments’ performance. For directing policy priorities of local government into growth and production end, it is suggested that local finance system is to be transformed into self-financing system from a current one, which is highly dependent upon central subsidies. And for leading local governments to be financially self-dependent, the authors propose that central government needs to reduce local allocation tax given to local governments and in its stead allow national income and corporate taxes to be shared byboth central and local governments.