Strategies for Implementing Intergovernmental Transfers to Foster Local Development in Korea

Abstract

This study proposes policy implementation strategies of intergovernmental transfers for local development in Korea. Based on the previous empirical research findings, the study assumes a positive relationship between fiscal decentralization and local economic growth. Once a positive relationship is assumed, the study goes on to analyze the utilities and strategies of intergovernmental transfers for local economic development in Korea. Before getting into a discussion of the Korean intergovernmental transfers system, the study briefly reviews the theoretical basis of intergovernmental transfers. Followed by is the analysis of the current system of intergovernmental transfers in Korea. Implementation strategies for local development will be proposed in the last section of the paper as the major thrust of the study. Research results suggest that the follwing policy measures should be considered: (1) restructuring the local tax system along with the intergovernmentqal transfers system; (2) adopting grants-centered intergovernmental transfers system; (3) establishing capital-focused grants system; (4) restructuring balanced national development special account grants; (5) combining the local education shared tax with the general local shared tax; (6) encouraging proactive local borrowings; (7) deregulating local transfer funds management; (8) institutionalizing effective monitoring mechanism in local transfers distribution; and (9) adopting quality assurance evaluation system.