The Korea Local Administration Review

This study analyzed influences upon financial operation of local governmentof city and county by tax reduction of central government in 2008 in theaspects of tax revenue and tax expenditure. Tax reduction in 2008 was achange of central government’s financial(tax) policy regardless of localgovernment’s willingness but its influences on local government were verylarge.The study results are as follows. Tax reduction in 2008 caused reduction ofsize of residence tax and local grant tax. Eventually, financial autonomy of localgovernment became lowered by diminished portion of general finances. And itwas identified that tax reduction affected process of deciding size of financialexpenditure for each policy category. Based on this analysis results, this studysuggests that current structure disturbs development of local governmentsystem from long term view, accordingly, improvement of such structure isneeded – under current structure, change of financial policy in central governmentcan severely affect local finance.
□ Keywords: tax reduction, local expenditure, financial operation