Political Decentralization, Subnational Political Capital, and Intergovernmental Transfers in Korea

Faced with ever increasing pressures for better performance and financial bottom line, governments around the world are devolving more responsibilities to subnational governments. Especially in developing countries, this trend has coupled with increased demands for greater democracy and disaffection with the services provided by the central government. This article examines what has happened in South Korea since its devolution reform in 1995. Specifically, it examines political capital factors in determining the amount of intergovernmental transfers to the regional governments. The analysis shows that political decentralization has resulted in financial weakening of the subnational governments of general purposes and that although the incidence of intergovernmental transfer is affected by the political considerations, Korea has substantially improved horizontal fiscal imbalance.