The Korea Local Administration Review

This paper estimates the GRDP elasticity of local tax revenue to investigate the relationship between performance of local economy and local tax revenue using a panel of 16 higher level local governments covering 2000-2008. We consider the possible difference in elasticities of regions under different characteristics as well as the influence of the change in local tax structure of the mid-2000s on the tax revenue elasticity. At the same time, we also estimate the GRDP elasticity of internal tax revenue of national taxes to identify the truth of the general belief that the national tax revenue tends to be more elastically change than local tax revenue with respect to the economic growth. We find that total local tax revenue changes elastically with respect to the local economic growth for the 2000s. Among the local taxes, it is appeared that both residence tax and property transaction tax have changed relatively elastically with respect to the local economic growth. Among the national taxes, it is shown that both personal income tax and corporate income tax are appeared to be highly elastic thanks to their progressive structure.