According to the consistent increase of social welfare subsidies (from around 4.5 trillion won in 2002 to about 14.9 trillion won in 2011), the amount of local governments’ obligation share has been soared (from 1.9 trillion won in 2002 to 7.1 trillion won in 2011). Due to this rapid increase of local governments’ share, there are concerns about weakening local governments’ financial integrity.
The Korean government has principles to determine the proportion of central government’s share of social welfare subsidy based on the finance conditions and social welfare expenditure of each local government. In particular, the proportion of central government’s share is lower in the city of Seoul compared to other local governments since Seoul has the sound fiscal health than others. In addition, the differential ratio within 10 percent point above and below from the standard central government’s proportion has been applied in accordance with local governments’ finance autonomy rate and social welfare expenditure rate since 2008. However, there has been no empirical analysis which assures whether the social welfare government subsidy system contributes to reduce the disparity of local governments’ obligation share as it was intended to.
In this regards, this report carries out statistical analysis on the finance
condition and the distribution of social welfare beneficiaries in 229 local governments and literature search about other countries’ government subsidy system. Based on the analysis, the National Assembly Budget Office (NABO) suggests several policy implications. First of all, the new principle is required to be introduced which decides the proportion of central government’s share of social welfare subsidy in accordance with the social welfare beneficiary rate of each local government. Second, the central government needs to run scorekeeping program regarding local governments’ subsidy share to lessen their weakening financial integrity. Last but not least, the role sharing model between central and local governments which is appropriate in Korea is necessary to be built by making clear responsibility share among central and local governments.
The Korean government has principles to determine the proportion of central government’s share of social welfare subsidy based on the finance conditions and social welfare expenditure of each local government. In particular, the proportion of central government’s share is lower in the city of Seoul compared to other local governments since Seoul has the sound fiscal health than others. In addition, the differential ratio within 10 percent point above and below from the standard central government’s proportion has been applied in accordance with local governments’ finance autonomy rate and social welfare expenditure rate since 2008. However, there has been no empirical analysis which assures whether the social welfare government subsidy system contributes to reduce the disparity of local governments’ obligation share as it was intended to.
In this regards, this report carries out statistical analysis on the finance
condition and the distribution of social welfare beneficiaries in 229 local governments and literature search about other countries’ government subsidy system. Based on the analysis, the National Assembly Budget Office (NABO) suggests several policy implications. First of all, the new principle is required to be introduced which decides the proportion of central government’s share of social welfare subsidy in accordance with the social welfare beneficiary rate of each local government. Second, the central government needs to run scorekeeping program regarding local governments’ subsidy share to lessen their weakening financial integrity. Last but not least, the role sharing model between central and local governments which is appropriate in Korea is necessary to be built by making clear responsibility share among central and local governments.
Lee Chaejeong