At the time of the comprehensive relinquishment of centralized administtative power in Korea, this study reviews the historical experience of U.S.A. caused by the New Federalism of Reagan administration. Fiscal decentralization from New Federalism may...
At the time of the comprehensive relinquishment of centralized administtative power in Korea, this study reviews the historical experience of U.S.A. caused by the New Federalism of Reagan administration. Fiscal decentralization from New Federalism may enhance the economic efficiency in the allocation of public services, however, it also makes worse the situation of lower income cities and increase the disparities between central city and suburbs in metropolitan areas, and between the lower income cities and higher income cities. To minimize the cost of fiscal decentralization while the benefit of it is retained, this study examines the effect of local fiscal structures on the equilibrium income of central city residents. An empirical study based on the extension of the classical urban dynamic models by Baumol(1963) and Oates et al.(1971) shows that more consistent government intervention through the composition of local fiscal structures is effective to increase the equilibrium income of central city residents even with the self-reinforcing urban change. As policy insight for local administration in Korea, this study suggests the neutral fiscal policy making from the view point of long-term urban change and the reform of tax structure based on the externalities of public goods and the mogration pattern of urban residents.