Abstract

As South Korea has made steady progress towards a mature welfare state, new social risks arising from demographic aging as well as low birth rates are becoming major factors of rapid expansion of public welfare expenditure. Since welfare expenditures are one of the largest and fastest growing components of total government spending, with

the local and regional government playing a pivotal role in providing social services, welfare expenses have placed a substantial financial burden on the government, in particular, the local government unit.

This study examines the current financial conditions and characteristics of the welfare spending of Seoul city and its 25 districts. By grouping similar districts into specific categories, this study provide theoretical types, which would allow in analyzing the fiscal structure, and risk factors of fiscal conditions of local districts in each categories.

There are four main findings in this study. It was realized that the recent growth of the welfare expenditure exceed that of total government spending, and the local government is largely subsidized by the central government. Secondly, since the matching requirements are increasing with the amount of grants and subsidies, the local welfare programs implemented by municipalities based on regional-specific demands, and a number of policy experiments proposed by local residents, are restricted. Our third observation was the significant differences in the amount and growth rates of welfare expenditure across the 25 districts in Seoul city. This impedes the balanced development of social services, and aggravates the regional disparities between rich and poor districts. Lastly, this study indicates that there are noticeable differences between the characteristics of welfare spending across the region, based on regional demand, and the willingness and the ability to pay for local welfare programs.

Our study results implicate that considering the future demand for social welfare services, the welfare cost clearly will become more unaffordable for many subnational government. The unclear division of roles and responsibilities between the central government and local governments as a welfare provider has led to heavier financial burden on local authorities, especially in the economically weaker regions. In addition, increasing match requirements for national welfare programs severely threatens the local autonomy.

Thus, it is imperative to clarify the roles and responsibilities of the national and local government. This study recommends that the financial contribution on welfare expenditure between the national and local government needs to be re-organized. The proportion of the matching burden placed upon the local authorities needs to be relived and readjusted based on the nature of the welfare programs and services. To conclude, it is essential to develop a integrated financial management system with a measurable index in order to evaluate fiscal sustainability and fiscal soundness of Seoul city.

 

Contents

01 Introduction

1_Background and Purpose of the Study

2_Main Contents and Research Methods

 

02 Fiscal Structure of the Local authorities

1_Social Welfare Revenue

2_Social Welfare Expenditure

3_Relationship between the Local Governments and The Central Government

 

03 Fiscal Condition of the Autonomous Districts of Seoul City

1_Current State of the Welfare Expenditure

2_Social Spending Gap Among the Autonomous Districts

3_Comparative Analysis of the Fiscal Capacity

 

04 Characteristics of the Welfare Expenditure of the Autonomous Districts

1_Analysis framework

2_Analysis of the Welfare Expenditure of the Autonomous Districts

 

05 Characteristics of the Regional Welfare Expenditure by Theoretical Types

1_Cluster Analysis on the Regional Welfare Expenditure

2_Characteristics of the Regional Welfare Expenditure by Theoretical Types

 

06 Conclusions

1_Conclusions

2_Policy Recommendations