The Korea Local Administration Review

This paper logically investigates characteristics of the social welfare equalization demand of local shared tax and analyzes its determinants empirically. In particular, it focuses on the four components of the social welfare equalization demand, of which amounts are measured by a numbers of welfare beneficiaries and the relative ratio of welfare beneficiaries to population of local governments. The analysis of the estimation structure of the social welfare equalization demand shows that all other things being equal, the demand for each component increases as the number of welfare beneficiaries in a local government increases or its population decreases, and an increase in demand by an additional welfare beneficiary is bigger than an decrease in demand by an additional resident. In addition, we analyze the effect on a local government‘s demand of the welfare beneficiary or population changes of other local governments, and on its demand of the ratio change in the local government with the lowest ratio of welfare beneficiaries to population. An empirical analysis on the determinants of the social welfare equalization demand confirms the results of the logical analyses of the effect on the demand of the welfare beneficiary and population changes, and shows that the effects on the social welfare equalization demand of both administrative district area and fiscal self-reliance ratio are not consistent among the components. Also, it presents that the distribution of the demands per welfare recipient for each category among local governments varies greatly, and that the demands may have big differences among them. Finally, it suggests the drawbacks of the estimation structure of the social welfare equalization demand and the need for a reform.