Determinants of Fiscal Decentralization Policy in the Republic of Korea

Abstract

The aim of this research is to explore the assignment of fiscal responsibility among levels of government and to evaluate the relative importance of socio-economic development and political-administrative conditions as determinants that explain the variations of fical decentralization policy of government in Korea. The empirical work was based on theoretical work in the area. Time-series data are used to include political and administrative variables which had not been included in previous empirical studies of this area. Regression equations were estimated by Ordinary Least Squares, Cochrane- Orcutt, and Maximum Likelihood techniques, whichever allowed for autocorrelation among the explanatory variables. The empirical results of the determinants study support much of the theoretical work in the area of fiscal decentralization. Socio-economic development, political democracy instability, and administrative factors primarily explain the variations in fiscal decentralization. Findings in this study suggest that if the goal of intergovernmental fiscal policy is to encourage fiscal decentralization or composite decentralization, then it should emphasize the political and administrative factors as well as the socio-economic development factor.