Korea’s Local Finance in 2023l

Published on September 20, 2023
Published by Administrative Budget Analysis Division

   Since the full-scale launch of local autonomy in 1995, Korea’s 243 local governments have steadily expanded their roles by implementing policies tailored to each region’s socioeconomic circumstances, and the scale of the local governments’ integrated spending rose from KRW 205.9 trillion in 2013 (the initial year of the announcement of integrated government spending) to KRW 398.1 trillion in 2023.
   The National Assembly of the Republic of Korea and the Korean government have focused on laying the institutional foundation for governance and fiscal decentralization as a priority task to help the local governments address issues within their jurisdictions in a preemptive manner. In 2023, theSpecial Act on Support for Regions with Shrinking Population and the Special Act on Governance Decentralization and Balanced Regional Development were enacted to actively respond to the populaton decline and risk of extinction that small local towns face and pursue governance decentralization and balanced regional development in an integrated manner. Furthermore, theLocal Town Extinction Response Fund and the Donation for Hometown Support Program were implemented, and Gangwon-do was designated as a special self-governing province.
    The OECD has projected that Korea’s recent slowdown in economic growth and ongoing demographic changes such as the low birth rate, population decrease, and ageing population are likely to lead to a decline in revenue and an increase in spending related to social welfare and thereby adversely affect both central finance and local finance. In particular, as the local governments often experience difficulties in expanding their fiscal space with the share of their transferred resources higher than that of their own resources, it is viewed as necessary to contemplate ways to secure more sources of revenue (local government bonds, etc.) and enhance efficiency.
    Against this background, this study illustrates the latest developments of newly established institutions with updated statistical data based on the 2023 budget statement and 2022 statement of accounts, whilemaintaining the existing three-part framework of the previous study. This study has also been supplemented to introduce the key systems and domestic and international cases related to major local finance management and coordination initiatives and provide in-depth information on demographic changes and the outlook on local finance, realignment of local administrative districts, reorganization of grants for educational finance of the local governments, and the establishment of special accounts for lifelong higher education.