An analysis of local revenue mobilization in urban development finance in Korea: A case study

Korea has been undergoing a massive and rapid transition in economy and urbanization for the last 30 years. Many urban development plans have been created to manage the changing economy and human settlement patterns. However, the rate of plan implementation has been poor. Many planners and local government officials involved in establishing plans have argued that insufficient fiscal consideration in the planning process is one of the critical problems in Korea. They further argue that many inadequately implemented plans may have relied on revenue sources with low revenue buoyancy or unstable revenue yields.;In analyzing plan implementation, political stability, administrative capacity, and consensus on goals are all important factors. Plan implementation is conducted through the budget process, but fiscal planning is not a required part of development plan in Korea. This study assesses the performance of the revenue system in Korean local government in terms of growth and stability. Examined are revenues from local taxes, rents, user charges and fees from 1977-87 in five case cities (Seoul, Incheon, Jeonju, Pohang and Jinhae) with different population sizes, personal income, and growth rates. Revenue buoyancy and stability are used as performance criteria. To compute the coefficients of local revenue buoyancy and instability indices, a linear regression analysis was employed.;The majority of local taxes and non-tax revenue sources were found to have relatively high income and population buoyancy coefficients with low instability indices. Therefore, it is evident that poor plan implementation in Korean local governments is not due to a lack of buoyancy or unstable revenue sources, but due to inadequate attention to fiscal aspects in the planning process. To take advantage of the type of growth it is experiencing, a city's revenue structure should exhibit relatively high buoyancy coefficients for the appropriate variables. The tax systems of Pohang and Incheon are not taking advantage of the type of growth their economy is experiencing, whereas other three case cities are.