Reform of the Intergovernmental Fiscal Transfer System in a Changing World -the Case of Korea-

Abstract

The purpose of this paper is to find a better intergovernmental fiscal transfer system in Korea in a rapidly changing world. In doing so, this paper analyzed the current status of the intergovernmental fiscal transfer system in Korea in various ways. In the pursuit of the reform of the intergovernmental fiscal transfer system the following four factors are particularly considered; (1)the current problems and limitations of the intergovernmental fiscal transfer system, (2)strengthening fiscal decentralization, (3)globalization, and (4)the unification of the Korean peninsula. Perhaps the key goals for reform in the fiscal system will be to provide local public services efficiently and effectively while, at the same time, maintaining macroeconomic stability. With regard to this, this paper comes up with some policy suggestions, particularly, focused on the changes in the intergovernmental fiscal transfer system in Korea. Most of all, the optimal level of fiscal decentralization in Korea must be determined, seeking council of many. Based on the consensus build-up, there needs to be a policy shift from the current grants-oriented policy to the policy of considering both the grants and the tax assignment. It is desirable in the future that the intergovernmental fiscal transfer system be consolidated into two types, that is, the general grant and the specific grant. In addition, this change must be embodied by changes in the structure, distribution formula, distinction of the current financing and capital financing, and etc. Furthermore, the implementation of the horizontal fiscal transfer system and the preparation of the fiscal transfer mechanism between the regions of South and North Korea must be considered seriously in terms of the prospective unification of the Korean peninsula.