Korea is aging at an unprecedented pace, and population aging has become one of the most serious problems in the country. While population aging is expected to affect a wide range of sectors of the economy, the fiscal autonomy of local governments could be substantially threatened by the associated decrease in tax revenue and increase in welfare expenditure, along with the decline in the local population. Against the backdrop, this study tries to find ways to improve local finance and fiscal decentralization, which are keys to the local autonomy system.
The study is organized as follows. Firstly, data are presented on population aging and its relationship with fiscal autonomy. Secondly, several social policy programs such as the national subsidy program and basic pension system are examined to see how they affect the finance of local governments. Thirdly, we discuss fiscal decentralization in general, and then how it works in Korea. Lastly, we investigate ways to improve the fiscal autonomy of local governments in the future, taking population aging into account.