The Korea Local Administration Review

This paper is trying to explain how the local tax exemption and reductionaffects the local government’s balance and economy in Korea. And the objectiveof this research is to prove if the amount of local tax exemption and reductionshould be decreased or not. In this paper, the local tax exemption andreduction is making the local economy boost but the effect of this one on thelocal income is smaller than one of the government’s expenditure on the localincome. And the local tax exemption and reduction is reducing the local tax andthe central government gives the local government the support grant(dependentresources). This dependent resources make the government’s expenditureincrease and the government’s balance is deteriorated. What is more, the effectof local tax exemption and reduction on the local government’s expenditure islarger than one of the local government’s income on that. That is called‘Flypaper effect’ and increase the local government’s expenditure rapidly. Theseresults show why the amount of local tax exemption and reduction should bedecreased.
□ Keywords: dependent resources, flypaper effect, local tax exemption andreduction