The Korean Journal of Economic Studies
The Adjustment Rate of the General Shared Tax and Fiscal Equalization across Local Governments: A Comparative Analysis with the Seoul Adjustment Grant
Man-Soo Joo (Hanyang University ERICA Campus)Year 2023Vol. 71No. 4
AbstractThis paper explores the impact of the local shared tax on fiscal equalization when the financial resources of the tax exceed the total amount of local governments’ financial shortages, as is the case in 2022. The paper also analyzes the fiscal equalization effect of the Seoul adjustment grant and compares it with that of the local shared tax to draw policy implications. The study finds that when the financial resources of the local shared tax are less than the total amount of local governments’ financial shortages, the fiscal capacity gap narrows without any change in the fiscal capacity ranking of local governments. However, when the financial resources exceed the total financial shortages, the fiscal capacities of subsidized governments are completely reversed, and the fiscal capacities of some subsidized governments become higher than those of non-subsidized governments. The paper also notes that while the Seoul adjustment grant does not lead to a systematic reversal of fiscal capacity among subsidized autonomous districts, it can lead to a reversal between subsidized and non-subsidized autonomous districts. Based on the results of these analyses, this paper derives a policy alternative for the local shared tax that can achieve fiscal equalization among local governments without causing any kind of reversal of fiscal capacity.