The Korea Local Administration Review

The paper analyzes the effects of property tax and local income tax, which isimposed with progressive tax rates, on fiscal gaps among local governmentsand evaluates whether pursuing nationwide equity with a progressive taxscheme is not a proper role for local governments. Based upon the benefitprinciple, we propose a tax reform that includes a proportional tax rates in bothproperty and local income tax and imposes local income tax only on personalincome under residence principle. It shows that using local tax data in 2008,property tax and local income tax magnify fiscal gaps among local governmentsand that progressiveness of the taxes results in larger gap in tax revenues thantax bases. Finally, the paper simulates the local tax revenues with the proposedreform, which presents to result in more equal revenue distribution among localgovernments.