The Korea Local Administration Review

This paper reviews German intergovernmental fiscal relations, including the joint tax system, and the fiscal reform in 2017, and draws policy implications for local fiscal reform in Korea. As comparing the local fiscal systems and the regional financial allocations in Germany and Korea, it suggests that there is a big difference in the effect of the intergovernmental transfer system on the regional distribution of per capita revenues. In particular, based on the structural factors that led to the success of fiscal reform in Germany, as argued by Thöne and Bullerjahn(2018), it derives the implications for decentralization reform in Korea. First of all, regionally balanced development should be defined based on the concept of equivalence and regional governments should be responsible for their development. Second, the central government has to set a numerical goal for fiscal equalization to be achieved by the intergovernmental transfer system so that all regions can meet standard fiscal needs. Third, fiscal equalization systems should be unified with a single law or complemented with an integrated system. Fourth, the intergovernmental transfer system should be established to ensure the hard budget constraints of local governments. Fifth, a fiscal reform should cover the entire interconnected local fiscal system. The paper has a qualification that these implications are not comprehensive as derived from a country case of Germany.