Political Economy of Fiscal Decentralization in Korea

Abstract

Essentially, fiscal decentralization is a matter for the governance, including local governments as well as fiscal authorities. In Korea, whether it is political, bureaucratic, or a matter involving the citizenry, no party truly yearns for fiscal decentralization. Yet, when it comes to every election, one can always hear hollow expressions about fiscal decentralization. This study aims to correct fallacies surrounding the awareness of fiscal decentralization. In South Korea, there has been an awareness that fiscal decentralization is a virtue, and that “20% autonomy” as a rhetorical phrase confuses the fiscal expansion of transferred funds from the central government with fiscal decentralization. Furthermore, balanced development is often confused with fiscal decentralization. If the tax revenue of the local government is over 80%, tax revenue decentralization and expenditure decentralization should be strengthened. If the tax revenue of the local government is under 30%, revenue decentralization should be guaranteed, while expenditure decentralization should be restricted. It is a false doctrine to claim that fiscal decentralization is workable without minimum autonomy and accountability established in local governments. Absent these requirements, fiscal decentralization remains an unattainable mirage. The reinforcement of autonomy and accountability should be the starting point and ultimate goal of a sustainable fiscal operation.