Worsening Local Fiscal Populism… We Must Pursue Genuine Decentralization, Not “Balanced Development”

Under the banner of “balanced development” and “responding to regional extinction,” the government and political circles have been dramatically expanding fiscal support for local governments. Through local shared tax grants, the Local Education Grant, the Special Account for Balanced National Development, the Regional Extinction Response Fund, and even support for restructuring local universities, central government finances are being transferred to the regions as if pouring water into a bottomless bucket.

The Special Account for Balanced National Development, which stands at around 10 trillion won, is nominally a source of funding for balanced development, but in practice its project structure remains a bundle of individual ministry-led national subsidy programs, making autonomous local planning and execution impossible. Likewise, the Regional Extinction Response Fund, also at around 10 trillion won, has the problem of weak linkages with regional industry and employment, as it is often used for local government heads’ populist projects, with a growing share devoted to hardware-centered cultural and tourism projects.

Despite massive fiscal input, regional self-sustainability has not been strengthened, and the trend of regional extinction has not been halted. The problem is not the scale of fiscal spending, but its method and structure.

Local fiscal policy to date has shared common limitations and characteristics: transfers of money without accountability, spending without results, and the entrenchment of dependence on the central government. Local shared tax grants and various subsidies automatically rise in tandem with domestic tax revenue regardless of economic conditions, and local governments have spent their policy capacity not on taking responsibility for fiscal management but on figuring out “how much more they can extract.” The result has been structural problems such as the decline of regional industries, the outflow of young people, and the expansion of the public sector.

The recently discussed administrative integration and local university integration are also highly likely to repeat the same mistake. The proposal to provide up to 5 trillion won annually, or 20 trillion won over four years, to integrated special cities may appear unprecedented on the surface, but in reality it is little more than an expanded version of existing local subsidies. Coming ahead of local elections, such fiscal incentives are enough to raise suspicions that this is less a policy experiment than fiscal populism aimed at winning votes.

Simply merging local governments and universities and giving them more money will not create competitive metropolitan regions. Integration that transfers only finances while leaving authority unchanged will merely create another fiscal claimant with enlarged administrative boundaries. Integration of local universities, too, cannot succeed if it merely keeps them alive through cash support; without parallel structural reform that reorganizes the entire education, research, and industrial ecosystem, failure is inevitable.

What is needed now is not indiscriminate fiscal handouts but genuine local decentralization and fiscal decentralization. What the central government must do is not to scatter temporary subsidies, but to change the authority and fiscal structure so that localities can make their own choices and bear responsibility for them. The starting point is to institutionally devolve part of tax revenue while clearly defining the corresponding spending responsibilities and performance evaluation. The center should handle standards and oversight, while local governments should compete under autonomy and accountability.

Balanced development cannot be achieved through election slogans. Appeasing the regions through fiscal incentives, as is being done now, may produce short-term political effects, but in the medium to long term it will only undermine both national fiscal soundness and regional self-sustainability.

The way to prevent regional extinction is not more money, but a different institutional framework. The time has come to discuss not “how much should be given,” but “what should the center transfer,” and how local governments, through differentiated planning and mid- to long-term strategies, can produce visible results in their regional economies and take responsibility for them.

Gwang yong Go, Policy Director at Center for Free Enterprise (CFE) / Director of the Korea Regional Economics Association

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Original title: 악화일로 지방재정 포퓰리즘… ‘균형발전’ 아닌 ‘진짜 지방분권’ 모색해야

Author: Gwang yong Go

Date: 2026-01-23

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28532