Basic Report

While proceeding fiscal decentralization, according to deregulation in issuing local debt, local governments expect to be more self-regulated and get more crucial role in issuing local debt. In this report, for this reason, we presents the optimal level of local debt issued by local governments and its management. First of all, it examines the optimal level of local debt applying the theoretical backgrounds of issuing local debt. Second, we use the estimation model for local debt to explain the optimal level of local debt in fiscal sustainability between local governments those which ever experienced fiscal crisis due to local debt and those which never experienced that. In the report, we conclude that local governments has to estimate the expected optimal level of its local debt while considering the possible fiscal fluctuation during its management for the external shocks in fiscal balance. First, local governments need to be more proactive to estimate the optimum to maximize the benefits from issuing local debt while considering fiscal shocks in fiscal balance. Second, local governments need to be more capable to manage its local debt using a variety of fiscal indexes such as the ratio of debt to budget, debt to general revenue, or debt to own revenue, etc. Third, in the long run, local governments need to employ more citizen participation, such as polls, to get consensus before issuing local debt in a certain level of threshold. Fourth, the central government must prepare the performance monitoring system evaluating decentralization due to the deregulation in issuing local debt by local governments.