The Korea Local Administration Review

Recently the financial crisis of local governments is an issue. Although theexpansion of tax revenue is difficult, a wide range of organizations and groups’request for subsidies has been explosively increasing. It accounts for up to 10percent of the total general expenditure budget. But excessive subsidies needto be controlled for the expansion of financial resources for investment.This paper discusses how to augment available financial resources forinvestment by drastic curtailing the number of subsidy projects and the amountof subsidies. To do so, an empirical analysis method is applied to subsidyprojects in office and bureau of the Daegu Metropolitan Government. As aresult, this study suggests to abolish or cut subsidies for non-essentialprojects. Especially, particular project implemented by a specific organizationshould be financed by the group itself or at least borne certain amount of fundby the benefit principle. Moreover, mid-long term research developmentprojects for creating the future new growth engine should be attracted lessthan 30 percent of local government’s matching fund and strictly managed toachieve research results and outcome.As systematic methods to reduce unnecessary subsidy projects, Sunsetsystem, Standard subsidy rate system, Private subsidy committee and Taskforce team are suggested. As a result, augmented available financial resourcefor investment is redistributed for repayment of local government bond or forearly completion of the major continuous projects. Finally, the soundness oflocal finance will be recovered through improving budget efficiency andproductivity.
□ Keywords: Subsidy, Benefit principle, Financial resources, Sunset system