The Korea Local Administration Review

This paper evaluates the Korean local fiscal system. The evaluation is largely accomplished based on the principles of fiscal decentralization which is presented by Bird(2000, 2001) and the related Korean previous studies. The main results are as follows. First, as their populations increase, per capita expenditures of local governments decrease while per capita revenues increase. So local governments with sparse population can not afford to spend with own revenue and they become very dependent on the central government. Second, some properties of the Korean local tax system suppress the taxing autonomy. The main local taxes do not conform to the benefit principle of benefit, the revenues are not stable, and some local taxes pursue the equity among individuals by imposing the progressive tax rates, which is improper as a local government role. Third, the intergovernmental grant system causes soft budget constraint, which weakens the fiscal accountability of local governments. Therefore, a simple expansion of local taxing resources with transformation of the national tax into the local tax does not guarantee the settlement of the fiscal decentralization, and a fundamental reform is necessary.

□ Keywords: fiscal decentralization reform, expenditure assignment, tax assignment, intergovernmental transfer, benefit principle, fiscal accountability