The government’s fiscal expenditures on social welfare are increasing at a pace faster than its total expenditures. In particular, the growth rate is even higher in the social expenditures in the form of government subsidies granted to local governments. This paper examines how the amount of subsidy is calculated for and allocated to each local governments.
The analysis suggests that the government establish principles for fiscal allocation and program coordination between the central and local governments. In addition, the deliberation results made by the Local Financial Burden Deliberation Committee should be reflected in budgeting, and local matching funds must be estimated for the longer term. Finally, the government should establish a principle for applying program-specific standard subsidy rates as well as incorporating both fiscal disparities and the program demand gap among local governments when determining differential subsidy rates.