Basic Report

  
  
    
   This study investigates tax assignment between upper and lower level local governments. The current local tax revenue is far less than local governments need to provide local public services to residents. Since lower level local governments have more information of their residents than any other level of governments, it is efficient for them to have enough tax revenue instead of transfer funds to provide local public services. If local public services are clearly assigned to local governments and residents know for which public services they need to pay local taxes, a great deal of achievement can be attained in enhancing local governments' fiscal power and accountability. Thus, we try to allocate more tax bases to lower level local governments in this paper. In order to simulate tax assignment between two tiers local governments, we assume total local tax revenue does not change after reassignment of tax bases. Because of the unchanged total local tax revenue assumption, upper level local governments may have short of their tax revenue. If it happens we recommends them to cut down their transfer funds to lower level local governments in order to minimize their tax revenue shortfall. The underline purpose of this study is increasing own source of tax revenue by decreasing transfer funds from upper level governments.
   Currently two tiers local governments have three different local tax systems. Seoul Metropolitan City-Districts and Metropolitan City-Districts have the same set of local taxes, and Province-City and Province-County have a different local taxes respectively. Under the current local tax system, upper level local governments have more tax revenue than lower level local governments. In this study, we designed diversified local tax system for four different local government types in order to broaden lower level local government's tax bases. Four different tax systems are like Seoul Metropolitan City-Districts, Metropolitan City-Districts, Province-City and Province-County. Three alternatives for each local government type are considered for policy recommendation. Those alternatives are chosen according to following three criteria. The first, minimizing deviation from the local tax principal, the second, enhancing lower level local governments' fiscal capacity, and the last, alleviating local tax revenue disparity among same level of local governments.
   Since it is important to observe each local government's tax revenue as well as total revenue including shared tax revenue after the tax reassignment, revenue change of each local government is calculated. After the tax reassignment, most local governments' fiscal capacity and fiscal disparity achieve a great deal of improvement.
   Up until now the tax assignment issues usually focus on between central and local governments, and disregard between two tiers local governments. However, local governments' tax assignment is also important as much as central-local tax assignment issue in order to achieve fiscal decentralization. In that sense, this study contributes for future policy recommendations by exploring several alternatives of tax assignment between upper and lower level local governments.