[Editorial] Worsening Local Fiscal Populism: We Must Pursue True Decentralization, Not Balanced Development

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

Despite this massive fiscal input, the self-sustaining capacity of the regions has not been strengthened, nor has the trend of regional extinction been halted. The problem is not the scale of the fiscal input, but its method and structure.

The recently discussed administrative integration and integration of local universities are also highly likely to repeat the same error. The proposal to provide up to 5 trillion won annually and 20 trillion won over four years to specially integrated cities may appear unprecedented on the surface, but in reality it is little more than an expanded version of existing local subsidies.

At a time when local elections are approaching, such fiscal incentives are sufficient to raise doubts that this is less a policy experiment than fiscal populism aimed at winning votes.

Local fiscal policy to date has shared common limitations: transfers of money without responsibility, spending without results, and the entrenchment of dependence on the central government. Local shared taxes and various subsidies are automatically linked to domestic tax revenue and continue to increase regardless of economic conditions, while local governments have exhausted their policy capacity not on responsible fiscal management, but on “how much more they can secure.” The result has been a return to structural problems such as the decline of regional industries, the outflow of young people, and the bloating of the public sector.

The same is true of administrative integration. Simply merging local governments and giving them more money will not create competitive metropolitan regions. Integration that transfers only finances while leaving authority unchanged merely creates yet another source of fiscal demand with enlarged administrative boundaries.

The integration of local universities, too, cannot succeed if it is merely kept alive through cash support; structural reform that reorganizes the entire ecosystem of education, research, and industry must accompany it.

What is needed now is not fiscal handouts, but genuine decentralization and fiscal decentralization. What the central government should do is not hand out temporary subsidies indiscriminately, but change the structure of authority and public finance so that local governments can make their own choices and bear responsibility for them. The starting point is to institutionally transfer part of tax revenue while clearly defining the corresponding spending responsibilities and performance evaluation. The central government should be responsible for standards and oversight, while local governments should compete under autonomy and accountability.

Balanced development cannot be achieved through election slogans. A method of placating the regions with fiscal incentives, as is being done now, may have short-term political effects, but in the medium to long term it only undermines both national fiscal soundness and the self-sustaining capacity of localities.

The path to preventing regional extinction lies not in more money, but in a different institutional framework. The time has come to discuss not “how much to give,” but “what to transfer and what responsibilities will be borne.”

2026. 1. 21.

Center for Free Enterprise (CFE)

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Original title: [논평] 악화일로 지방재정 포퓰리즘, 균형발전 아닌 진정한 지방분권 모색해야

Author: Center for Free Enterprise (CFE)

Date: 2026-01-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=comment&pn=1&idx=28528