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This study identified financial inadequacy of social welfare program by adopting decentralization revenue sharing system (DRSS). It is expected that there would be inharmony between the expenditure and revenue of local government because the programs were transferred to local government regardless of its preference while the central government was restructuring national subsidy system.
Considering the local government is one of the main actors of consumption in the national economy, it is necessary to rearrange expenditure structure by its rational selection. In addition, restructuring local government expenditure needs to take into consideration both income and price effect since there is no guarantee to promote investment of social welfare program by securing DRSS. If income elasticity of social welfare program is inelastic, effect of investment increase would be limited. Based on this thought, this study estimated income elasticity of each expenditure program by employing AIDS(Almost Ideal Demand System). AIDS derives from consumer behavior optimization by demand theory and is useful to analyze consumption behavior and character of commodity.
As a result of analysis, it is estimated that social welfare program is elastic through all types of local governments. This result implies that increase of ordinary revenue sharing as financial resource transfer would be effective in order to improve social welfare service with optimal investment level.
