3. Finance of Local Government3. Finance of Local Government

3-1. Revenue Structure

3-2. Revenues from Own Sources

3-3. Transfers from

Central Government

3-1. Revenue Structure

3-2. Revenues from Own Sources

3-3. Transfers from

Central Government

Revenue StructureRevenue Structure

From Own Sources - Local Taxes - Non-Tax Revenues

Transfers from Central Government - Local Shared Taxes (except for autonomous districts) - National Subsidies - Local Transfer Funds (up to 2004) - National Balanced Development Special Account (since 2005)

Local Borrowing

Transfers from Upper-level to Lower-level Local Governments - Metropolitan Subsidies and Provincial Subsidies - Adjustment Grants (only for autonomous districts)

Revenue StructureRevenue Structure

2000 2001 2002 2003 2004 2005

From Own Sources 61% 60% 59% 62% 65% 63%

Local taxes 31% 32% 31% 31% 34% 33%

Nontax revenues 30% 28% 28% 31% 31% 30%

Fiscal Transfers 34% 36% 37% 35% 33% 34%

Local shared taxes 13% 16% 14% 15% 15% 18%

National subsidies 15% 14% 18% 15% 14% 16%

Local transfer funds 6% 6% 5% 5% 4% NA

Local Borrowing 5% 5% 4% 3% 3% 3%

TOTAL (trillion won) 65 79 91 98 99 107

Revenues from Own SourcesRevenues from Own Sources

Income Tax - Resident Tax (income part), Farmland Income Tax

Consumption Tax - Tobacco Consumption Tax, Butchery Tax, Leisure Tax, Local Driving Tax

Property Tax - Acquisition Tax, Registration Tax, License Tax, Property Tax, Automobile Tax, Urban Planning Tax, Common Facilities Tax, Business Office Tax

Other Tax - Resident Tax (household part), Regional Development Tax, Local Education Tax

Local Taxes (until 2010)Local Taxes (until 2010)

Revenues from Own SourcesRevenues from Own Sources

Income Tax - Local Income Tax

Consumption Tax - Local Consumption Tax, Tobacco Consumption Tax, Leisure Tax

Property Tax - Acquisition Tax, Registration & License Tax, Property Tax, Automobile Tax, Resident Tax(business office part),

Other Tax - Resident Tax(household part), Regional Resource & Facility Tax, Local Education Tax

Local Taxes (Since 2011)Local Taxes (Since 2011)

Revenues from Own SourcesRevenues from Own Sources

Local Taxes (until 2010)Local Taxes (until 2010)

Resident Tax

Farmland Income Tax

Tobacco Consumption Tax

Butchery Tax

Leisure TaxLocal Driving Tax

Acquisition Tax

Registration Tax

License Tax

Property Tax

Automobile Tax

Urban Planning Tax

Common Facilities

Tax

Business Office Tax

Regional Development

TaxLocal Education

TaxProvince Tax

Metr

o c

ity T

ax

City/County Tax

Autonomous District Tax

Revenues from Own SourcesRevenues from Own Sources

Local Taxes (Since 2011)Local Taxes (Since 2011)

Resident Tax

Tobacco Consumption Tax

Leisure Tax

Acquisition Tax

Registration & License Tax

Property Tax*

Automobile Tax

Regional Resource & Facility Tax

Local Education

TaxProvince Tax

Metr

o c

ity T

ax

City/County Tax

Autonomous District Tax

LocalConsumption Tax

Local Income Tax

Revenues from Own SourcesRevenues from Own Sources

Non-Tax RevenuesNon-Tax Revenues

Current non-tax revenuesTemporary non-tax revenues

Methods used for raising non-tax revenues - utilization of profit-creating businesses - local public enterprises (corporations) - public land development - price rationalization of fees and charges

Local BorrowingLocal Borrowing

Local Bonds/ Borrowing both domestically and abroadMust obtain consent from the Ministry of Public Administration and Security if exceeding limits

Transfers from Central GovernmentsTransfers from Central Governments

Local Shared TaxesLocal Shared Taxes

Local Shared Taxes - Supplementing local fiscal resources and equalizing local fiscal capabilities - general grant: general discretionary purpose “money without string” - 19.24% of domestic tax revenues

General Shared Tax: 96% - Allocated by Formula, Standard Financial Demand – Standard Tax RevenueSpecial Shared Tax: 4% - Allocated on the basis of special local needs, i.e., Natural disaster

1983 2000 2004 2005 Since 2006

13.27% 15% 18.3% 19.13% 19.24%

National SubsidiesNational Subsidies

National Subsidies - specific grant, “money with strings” - Encourage local governments to undertake certain projects favored by the central government - provide financial assistance for special or unusual occasions

(trillion won) 1991 1995 1997 1999 2001 2003

National subsidy (A) 2.0 3.9 5.9 8.6 10.6 12.1

Total transfers (B) 13.1 22.4 30.6 31.6 46.1 53.2

A/B 15.3% 17.4% 19.3% 27.2% 23.0% 22.7%

Transfers from Central GovernmentsTransfers from Central Governments

Regional Development Special AccountRegional Development Special Account

Since 2005

Regional Development Special Account - Block Grant - Promoting the revitalization of depressed areas - Developing local culture, art, and tourism - Strategic development of regional industry clusters

Revenue Sources - Proceeds from liquor tax revenues - Transfers from several special accounts such as rural restructuring, environmental improvement, and land management (originally national subsidies)

Transfers from Central GovernmentsTransfers from Central Governments

Local Transfer FundsLocal Transfer Funds

Local Transfer Funds - To secure more balanced regional development - To serve as a supplement to local fiscal resources

Revenue Sources - liquor tax, transportation tax, rural development tax

Transfers from Central GovernmentsTransfers from Central Governments

2000 2001 2002 2003 2004

Road maintenance 48% 48% 39% 40% 44%

Agricultural & fishery area development

8% 8% 9% 9% 8%

Water pollution prevention 25% 26% 33% 32% 31%

Youth support 1% 1% 1% 1% 1%

Local development 17% 18% 18% 19% 17%

TOTAL (trillion won) 3.7 4.8 4.3 4.9 4.4

Transfers from Upper-Level to Lower-Level Gov’tTransfers from Upper-Level to Lower-Level Gov’t

Metropolitan and Provincial Subsidies - To strengthen the connection between upper-level local governments and specific projects at the lower-level local governments - Similar to National Subsidies Adjustment Grant - Revenue sharing program between metropolitan cities and their own autonomous districts - Similar to Local Shared Taxes - Revenue sources: Acquisition Tax and Registration Tax Contribution rates vary depending on each metropolitan city’s ordinances.

Transfers from Central GovernmentsTransfers from Central Governments

4. Intergovernmental Relations4. Intergovernmental Relations

4-1. Vertical Fiscal Imbalance

4-2. Horizontal Fiscal Imbalance

4-3. Intergovernmental Relations

4-1. Vertical Fiscal Imbalance

4-2. Horizontal Fiscal Imbalance

4-3. Intergovernmental Relations

Vertical Fiscal ImbalanceVertical Fiscal Imbalance

Year Central Government Local Government Local as % of Total

Amount(trillion Won)

% of GDP Amount(trillion Won)

% of GDP

2000 124 21.4 46 8.0 27

2001 137 22.1 45 7.2 25

2002 145 21.2 41 6.1 22

2003 159 22.0 50 6.9 24

2004 158 20.2 60 7.8 28

2005 168 20.6 61 7.5 27

2006 175 20.0 65 7.5 27

Not sufficient fiscal resources for local governments to support and operate the new system of local self government

Horizontal Fiscal ImbalanceHorizontal Fiscal Imbalance

Revenue as % of Total

Upper Level Local Governmen

ts

Lower Level Local Governments

(N)

Metropolitan Cities and Provinces

Municipal Governments

County Governments

Autonomous Districts

Under 30%

44% 38% 93% 20% (132)

30-50%

6% 38% 6% 64% (79)

Over 50%

50% 24% 1% 15% (39)

Total 100% 100% 100% 100%

(N) (16) (77) (88) (69) (250)Financial Self-Support

- Upper level local gov’ts > Lower level local gov’ts - Urban governments > rural governments - Local gov’ts near Seoul > Other area’s local gov’ts

Unit: Own sources revenues as % of total revenue (2005)

Intergovernmental RelationsIntergovernmental Relations

Local governments depend heavily on the central government. “inclusive-authority model”(Wright, 1988)

Roles and functions - Do not have own judicial, prosecution, police, or education systems

Organizations and personnel - Vice executives dispatched by the central government - Major change in organizations or manpower structure are subjected to approval by the high level of government

Budgets - Lack of balance in the distribution of revenue sources between the central and local governments - Poor tax bases in many of the local governments - Intergovernmental fiscal transfers are important revenue sources for a majority of Korean local governments

Thank You!Thank You!