The Korea Local Administration Review

President Moon has promised publicly to introduce the hometown donation system, which is similar to a Japanese policy implemented for mitigating the fiscal disparity among localities and revitalizing local economies. This paper evaluates the system based upon the principle of decentralization and the experience of Japan. First, it would fail to mitigate the fiscal disparities with the system because taxpayers who will choose a locality to donate do not take care of its financial condition. Second, it is wrong to argue that taxpayers have just enjoyed the public services of their hometowns without contributing. They have paid taxes to their poor hometown governments through the intergovernmental transfer system even though they live in other towns. Third, the attempt to promote a local economy by rewarding contributors with regional goodies will cause negative competition among the local governments and distort the efficiency of the market economy. So the economic revitalization effect for the whole country will not occur as expected. Fourth, a local government’s recommendation to donate could be considered to force private sector to do, which results in a crime of the third party bribery. Fifth, the system is not compliant with the principle of decentralization because it covers the cost of local public services from other local residents. In summary, it is evaluated that we could not achieve the goals pursued through the hometown donation system while we would pay great social costs. Thus, the introduction of the system should be reconsidered until measures are made to achieve the goals and to minimize these problems.

□ Keywords: hometown donation system, hometown tax payment system in Japan, principle of decentralization, market distortion