Analysis of Expected Financial Problems under Consolidation of Metropolitan Local Governments: In the Case of Daegu Metropolitan City

Abstract

Based on the logic of Oates and Tiebout, the theory of public choice has long supported the competition among the local governments. However, the consolidation of metropolitan local governments has arisen as the possible solution to resolve various problems that are faced by local governments although it may lead to a lesser competition among local government. This article analyzes the expected financial outcome of the consolidation between Daegu metropolitan city and Kyungbook province. After such a consolidation, total revenue of local taxes is expected to remain constant, while the internal structure of tax and the political status of local government will change. Some areas that are now in Kyungbuk’s autonomous district but would belong to Daegu after consolidation are sure to suffer decrease in local grant revenues. Therefore, some special measures are necessary to supplement this financial loss. Special treatments will be required in general adjusted grants, local tax items, immunity from disadvantages imposition rule, and flexible operation of stipulated local grants rate.