The Korea Local Administration Review

The new government presented various policies for strong fiscal decentralization. In this study, we discussed whether these policies were desirable.
This study pointed out that the biggest problem of local government finance in Korea was the large gap between revenue and expenditure and excessive dependence of local governments on the central government finance. To solve this problem, this study suggested that some portion of the national tax, especially value-added tax and income and corporation tax, should be transferred from the central government to the local governments.
We also pointed out that categorical grants should be reduced through abolishing national subsidies for local government affairs, and rearranging the subsidy rate of unreasonable government subsidies. These alternatives could be very effective to allocate resources efficiently and to reduce the excessive burden of local expenditures. In particular, this study insisted that adjustment of the subsidy rate of subsidy for welfare, which has become the biggest burden on local government finance, was an urgent matter.

□ Keywords: Fiscal Decentralization, Local Consumption Tax, Local Income Tax, Categorical Grant