한국지방행정연구원

Over the 30 years of Korea’s local autonomy system, the scale of local finance has expanded nearly twentyfold. Nevertheless, discussions have largely overlooked a fundamental question: what level and size of fiscal capacity should local governments possess to enhance residents’ quality of life? During this period, advocates of fiscal decentralization have argued that improving the quality of life for residents requires greater fiscal autonomy; if fiscal decentralization is realized, local governments will exercise independent financial decision-making and invest resources for the benefit of their residents. In contrast, advocates of fiscal centralization contend that local governments tend to exhibit budget-maximizing behavior that leads to inefficiency in budget execution, and that the current financial scale of local governments is not insufficient.
Consequently, whenever a new administration is launched, the two positions have clashed around policy tools such as adjusting the national tax–local tax ratio from 8:2 to 7:3 or 6:4, raising the statutory rate of general grants, and reforming national subsidy programs. However, both arguments presuppose a prior question that has not yet been empirically examined: whether local governments—regardless of whether they behave as self-interested or resident-oriented actors—actually possess autonomous fiscal resources sufficient to enhance residents’ welfare. To date, research on this matter has remained underdeveloped.
This study analyzes the sufficiency of local governments’ fiscal resources—the foundation of both major debates—by conceptualizing and empirically measuring available fiscal resources.
Key Findings
(1) Concept and Scope of Available Fiscal Resources
The study clarifies the meaning and operational scope of available fiscal resources through theoretical discussion and practical applicability. Depending on the analytical approach, available fiscal resources can be classified into:
Ex-ante Available Resources: Fiscal independence ratio and fiscal self-reliance ratio
Operational Available Resources: Fiscal resources available for discretionary spending
Ex-post Available Resources: Year-end surplus
Among these, the study identifies operational available resources as the most crucial category in central–local fiscal relations within a three-year budgeting cycle, since financial autonomy is exercised within the constraints of ex-ante indicators and the rigid expenditure structure created by national subsidy programs. Accordingly, this research narrows its definition of available fiscal resources to the second category and refers to it as “the available fiscal resources of this study.”
(2) Construction of an Available Fiscal Resources Model
The study develops a new model to extract the portion of the budget that represents genuine discretionary fiscal resources of local governments. This model overcomes limitations in prior research (J. Cho 2015; S. Kim et al. 2022; Ministry of the Interior and Safety model), including:
Outdated reflection of recent budget classification systems
Lack of differentiation across types of local governments (metropolitan, basic cities/counties, autonomous districts)
Failure to account for the expansion of mandatory expenditures caused by local ordinances governing intergovernmental transfers
By applying a five-step measurement framework, the study establishes a highly valid method for estimating available fiscal resources. Findings indicate that the concept of available fiscal resources is substantially more relevant for basic-level local governments (cities and counties) than for metropolitan governments and autonomous districts. The model produces estimates that more accurately reflect the actual budgetary behavior of local governments.
(3) Utility of the Model
Analysis of the estimated available fiscal resources reveals:
Some local governments have lower available fiscal resources than their fiscal independence ratio would suggest, and others lie between the fiscal independence and fiscal self-reliance ratios. This demonstrates that local governments execute mandatory expenditures using both own revenues and intergovernmental transfers, and that available fiscal resources better capture the level of discretionary spending.
A gap exists between general grant shortfalls and the estimated amount of available fiscal resources, suggesting that an increase in the available fiscal resource level is necessary to meet standard fiscal needs. Statistical analysis further shows that: An increase in own revenue or in intergovernmental transfers (general grants) raises the level of available fiscal resources.National subsidy programs are implemented similarly across local government groups, demonstrating that the current expenditure structure constrains discretionary spending.
In sum, the study emphasizes that the core of fiscal decentralization does not lie merely in reallocating tax authority, but in expanding the available fiscal resources—i.e., the discretionary fiscal capacity—of local governments.