논문

This study aims to review the decentralization of sub-national bond flotation from
a theoretical point of view, empirically analyze the possibility of soft-budget-
constraint due to the self-regulation on sub- national bond issuance, and
suggest a desirable guideline for the fiscal decentralization policy.

The experiences of Brazil and Argentina indicate that the soft-budget- constraint
due to the self-regulation on sub-national bond issuance may lead to the
vulnerable national finances, economic destabilization and the failure of the
decentraization policy itself.

This empirical study concludes that the local governments in Korea show a
tendency to soft-budget-constraint. This conclusion means that the approval of
full autonomy in issuing sub-national bonds may lead to unexpected results.

Therefore, autonomy in issuing the sub-national bond should be encouraged in
the company of couplementany measures such as the imposition of penalties on
the fiscally unsound local entities by regular assessment and the fiscal risk
management system which will abate the risk of soft-budget-constraint.