The Korea Local Administration Review

The recent fiscal crisis of local governments results from two main facts.The first one is that new welfare policies of central government impose anadditional fiscal burden on local governments. The second is that the demandfor social welfare expenditure has increased, which results from new socialrisks such as low fertility, rapidly aging population, and poverty.This study analyzes the causes of fiscal crisis of local governments in termsof three categories of crisis, namely crisis of structure, decision, and society.The increasing demand for social welfare finance is analyzed by using theheuristic or causal statements drawn from the existing studies on this subject.This study suggests that the methods to cope with rising demand for socialwelfare expenditure should be proposed differently according to the levels andtypes of local governments. This paper highlights that the role of centralgovernment is more important to overcome the crisis of structure and decision.And the central government and local governments should play different rolesto cope with rising demand for social welfare expenditure which means thecrisis of society.
□ Keywords: crisis of local finance, demand for social welfare expenditure,determinants of social welfare finance, grants-in-aid system