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Fiscal Equalization and Convergence in Local Income

Keunjae Lee 1 Jeong, Jongpil 2 Byeongho Choe 1

1부산대학교
2국가전문지방행정연수원(수원)

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ABSTRACT

This paper analyzes the effect of intergovernmental transfer on the local fiscal equalization and its influence on the convergence of per-capita income under the Participatory Government in Korea. The empirical result shows that the ranking of per-capita fiscal revenue among local governments is reversed after distributing all types of intergovernmental transfers. This result shows that the government has performed excessive local fiscal equalization through grant-in-aids in order to promote Balanced National Development, which has been on of the main national policy objectives. However, we cannot find the evidence on the convergence of per-capita income among localities. This result is a strong evidence for the recent debate on the excessive equalization effect of current transfer system and its influence on the local income convergence.

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