Regional demographic changes and financial independence of local governments in Korea

Abstract

Regional disparities in Korea are gradually intensifying, coupled with changes in regional demographic characteristics. Despite the implementation of various policies, progress concerning decentralization and securing the financial independence of local governments have not been very effective. The widening of the gap between the regions is due to changes in the regional populations. This study analyzes policy countermeasures based on the relationship between population changes and the degree of financial independence among regions. We empirically analyzed the influencing factors in the financial independence of the local government using a spatial panel model with a longitudinal approach. The spatial range includes 225 municipal and provincial government units. Our results suggest that demographic characteristics, such as the elderly population ratio, population size, and population growth rate, have diverse relationships with the local government's financial independence. Local governments with a high proportion of the elderly population are likely to face low levels of financial independence and high dependency on central government subsidies. It is important to consider the criteria that exacerbate the financial conditions and sustainability of local governments. Active management and assistance policies from the central government can support those local governments with low financial independence ratios and unstable demographic characteristics.