논문

In this study, We analyze horizontal and vertical equity effects of grants using Granger Causality Test and Error Correction Model, which are popular in time series econometrics. By Granger Causality Test, we found that Local Share Tax is Granger -caused by local tax revenue and has vertical equity effects. But it turns out that National Grants are not affected by local tax revenue and have its own operational mechanism. Error Correction Model reinforces this results. Overall adjustment coefficient is 1.05～1.20, which implies that vertical equity effect is fairly significant. However, Considering the Coefficient 0.85 of Local Share Tax, we recommend that it should expand by 15%.
On the other hand, local adjustment coefficient is quite different to each other and it is positively correlated with the size of local government expenditure. It implies that the horizontal equity effect is not significant. We confirm this result by Varience Decomposition method.