The Korea Local Administration Review

The grant system of local governments is based on the premise that local governments can enhance their responsibility by themselves with the increased autonomy of fiscal management. However, expanding the autonomy of fiscal management does not always guarantee to raise responsibility. A fundamental reason it is inevitable for the financial responsibility of local governments to be distorted lies in the principal-agent relationship necessarily created in the representative democracy and the operation of grants. The study explains irresponsible behaviors arising in local governments’ grants management with the relationships between authorizers and agents. Also, it diagnoses the problems resulting from such relationships with some cases in the audit reports, and then gives some suggestions.

□ Keywords: Local Grant System, Principal-Agent Theory, Responsibility