It is time to improve the effectiveness of welfare expenditure to reduce thefiscal burden due to increasing welfare demand. As one of its solution, thisstudy proposes increasing the autonomy of local governments in planning theirwelfare-related budget and its spending. Considering the role and expertise ofcentral and local governments, it is desirable that the central government takescharge of basic welfare service like public aid, and the local governmentsspecialize in social service that is based on local-specific welfare demand. Thisstudy discusses the validity of the proposals theoretically and empirically.