논문

The Seoul metropolitan government is facing a problem of fiscal disparity among
25 basic units of local governments within its boundary (technically, these units
are called “Gu” however, the term “district” will be used in this paper). It is not
an uncommon problem as a metropolitan government to encounter this problem
(Orfield, 1997). However, a local autonomy system in Korea which has been
reinstated from March 1991, contributes to a bigger fiscal gap among local
governments. The local autonomy system grants local governments with
independent legislative, administrative, organizational power, and most important
of all, independent public financial power of local governments. Local public
finance has been largely neglected in Korea, but has now come to the fore in the
wake of the reinstatement of the local autonomy ststem. It implies that the Seoul
metropolitan government has a limitation of control over fiscal matters on the basic
units of local governments. This is why the fiscal gap has been growing among
districts. It is about time to implement a new policy in order to alleviate the fiscal
imbalance problem which has risen to the surface in the Seoul metropolitan
government after 10 years of practicing local autonomy system.

Seoul, the capital of Korea, is the center of most areas such as politics,
economy, education, culture, etc. It causes more fiscal problem than any other
metropolitan governments throughout a country. Although the area of Seoul is only
0.6% of the entire country, Seoul has a population of 10,373,234 individuals and
3,458,511 households which accounts for about a quarter of the total national
population. Therefore, as a leader among local governments, the Seoul
metropolitan government plays an important role.

Harmonization of the efficiency and the equity issue to improve one's welfare is
an important criteria for public finance although the two principles conflict with
each other. Fiscal decentralization after the reinstatement of the local autonomy
system impacts the progress toward the efficiency but somewhat neglects the
pertinance of equity, even though it is a common phenomena. The upper level
government desires to alleviate the fiscal disparity in order to improve equity.
However, it not only will weaken the accountability of lower level government but
also weaken local government's autonomous power. Special caution should be
paid when upper level government equalizes the fiscal disparity among lower
level governments.
There are two ways of alleviating fiscal disparity in Seoul metropolitan area. One
is an enlargement of grants so that transfers are sufficient for the fiscal demand of
each district. The Seoul metropolitan governments may prefer this method if it is
allowed to increase the amount of grants to equalize the fiscal imbalance among
25 districts. Nevertheless, it may weaken the accountability of local governments
due to their dependence on grants rather than their own source of revenue. The
second way of alleviating fiscal disparity would be sharing the tax base between
Seoul metropolitan government and districts. Although it is not a direct way of
equalizing the fiscal imbalance, the reform of tax base may have a secondary
effect if tax bases are restructured in a way that is desirable to all relevant
parties. It is an efficient way of decreasing fiscal disparity since autonomous
power is still given to the district. Since the second strategy is more efficient than
the first with respect to the accountability of local government, this paper will
focus on restructuring the tax base to alleviate the fiscal disparity in the Seoul
metropolitan area.

The organization of this paper is as follows. Section II describes the composition
of revenue and structure of tax system in local government. Section III explains
the fiscal problems in Seoul Metropolitan Area along with the structure of local
governments and their characteristics. Details regarding fiscal problems within 25
districts, especially the fiscal disparity issue are discussed. Section IV
discusses the restructuring of the tax base in terms of the tobacco consumption
tax and the aggregate land tax, and recommendation relating to the issue of the
fiscal disparity. And the last Section is comprised of the conclusion of this paper.