The design of fiscal autonomy affects local governments’ behavior and determines outcomes such as public sector efficiency, equity in access to public service or the long term fiscal stance. This paper examines Korean local governments’ fiscal autonomy in comparison to OECD countries. It presents a set of fiscal autonomy indicators such as revenue and expenditure decentralization, tax autonomy, and intergovernmental grants.
Although local governments’ share of general government outlays is a relatively high portion compare to those of other OECD countries (However), the benefits of fiscal autonomy have not been fully realized.

The priority should be placed on enhancing the independence of local authorities by establishing a clear division of responsibilities and transferring additional assignments to the local level. Improving the fiscal federalism framework also requires strengthening revenue raising power of local governments and simplifying the structure of local taxes. The allocation of intergovernmental grants should be more transparent and the regulations attached to them should be relaxed to expand flexibility, while reliance on block grants increased. In addition, a feedback system to strengthen fiscal accountability should be introduced.