The Korea Local Administration Review

This study analyzed the causalities among the gap index of local economies and local public finance gap index based on empirical test of long-term time series data. The results of the analysis based on long-term time series data are as follows. First, the regional economic gap index were found to be Granger causes of the local fiscal gap index. Second, there were many causal relationships in both directions in terms of the total amount among the regional economic gap index and the local fiscal gap index. In other words, it was possible to confirm that the gap of regional economy was Granger cause of the gap of local public finance and the gap of local public finance was Granger cause of regional economic gap, but the former causal relationship was stronger. Therefore, in order to narrow the horizontal gap in local public finances, it should be recognized that not only the fiscal adjustment system but also a balanced development policy is necessary.