2018 Local Government Finances of the Republic of Korea
Published on 6 August 2018
Published by Administrative Budget Analysis Division of the Budget Analysis Department
The purpose of this report is to enhance the parliamentarians, assistants and the general public’s understanding of local government finances, given the importance of local government finance.
Since the full-fledged implementation of local autonomy in 1995, local governments have been fulfilling their role as part of the national body yet distinguished from the central government. The consolidated fiscal expenditures of local governments, which consist of 234 municipal governments, increased by approximately 46 trillion won over 5 years, from an initial figure of 154.4 trillion won in 2013 to 209.3 trillion won in 2018. Although the national and local taxation ratio within the total taxation system is 77.5 : 22.5, the fiscal spending ratio of the central and local government is similar at 50.3 : 49.7. In addition, since local governments cannot accrue their fiscal budgetary needs solely with their own income sources such as local taxes, the central government transfers approximately 150 trillion won (as of 2018) of funds to local governments on an annual basis. As such, local government finances are closely linked to central government finances as part of the national finances, and their representation and significance continue to increase.
This report is composed of three parts: “Part 1: Introduction to local government finances” which explains the status of local government finances including their consolidated fiscal volume as well as major fiscal indicators such as the financial independence of local government finances, with associated commentaries.
“Part 2: Developing local government finances” presents the legal framework and operation principles of local government finances as well as their budgeting process including formulation, execution and settlement. An introduction is also made to the local government finance management system towards enhancing local fiscal soundness.
“Part 3: Assisting local government finance” explains the local coordination system between the central and local governments which consists of local share tax, local educational financial grant and government subsidy; as well as the local government finance coordination system between local governments which is composed of subsidies for city and provincial expenses, adjustment subsidies and funds transferred to education agencies under a local government.
In addition, related issues are examined throughout the complementary report, providing an in-depth illustration of local government finances as well as a structured account of the relation between central and local government finances in the context of national finances.