The purpose of this study is to analyze the effects of aging population on local government revenues and expenditures. To do it, this paper conducts a substantive analysis of 15 metropolitan cities and provinces and 216 local governments(city, county, autonomous district) for 11 years from 1997 until 2007, with the tool of a panel regression model. The results of the analysis are summarized as follows.
First, the aging population rates have the positive effects on independent revenues(local tax, non-tax revenue) and dependent revenues(local shared tax, subsidy). The impact of aging population on local government revenues has greater effects on dependent revenues, especially local shared tax than dependent revenues.
Second, it is analyzed that the advanced aging rates have positive effects on general administration expenditure, social development expenditure, and economic development expenditure as the annual expenditure categories of local public finance. In particular, the impact of aging population on local government expenditure has greater effects on social development expenditure than general administration expenditure and economic development expenditure.
Third, the results of these empirical analysis reveal that increasing aged population in local government may cause the fiscal dependence to central government and the imbalance between local government revenue capacity and expenditure demands of local finance.
Fourth, it showed that provinces had bigger impact than metropolitan cities on revenue and expenditure with analyzing by metropolitan council, according to the impact analysis of aging people on local revenues and expenditures by splitting the hierarchical organization of local governments into metropolitan cities and primary local government. In particular, the provinces appear to have higher possibilities to encounter the dangers falling into a disadvantageous position than metropolitan cities in terms of financial responsiveness as aging rate is getting higher, turning out that their increasing rate of local grant taxes topped among others
And it is analyzed that increasing rate of non-tax receipts has higher impact than local taxes, on the contrary to the analysis of metropolitan council in terms of revenue according to analysis by primary local governments. It is highly likely to incur expanding imbalance between local revenue and expenditure due to higher impact on expenditure rather than on revenue in county areas, while showing that aging population has positive impact on the local revenue and expenditure.
Fifth, it can verify that county areas which already entered into super high aged societies are more dependent on central government than cities staying at the aged society in securing local finance revenue, showing the differences between increasing rate of depending resources and local grant taxes among revenue items of local finance in areas with stages of aged society and super high aged society, according to the analysis of impact difference on local revenue and expenditure according to aging levels. It has been also analyzed that expenditure of social development will be highly increased in the area with stage of super high aged society rather than in the area with stage of aged society.
Sixth, it showed that areas with lower fiscal self-reliance ratio had higher impact on local expenditure than on local revenues, according to difference analysis of aging population''s impact on local revenue and expenditure depending on fiscal self-reliance ratio, and it is likely to incur expanding imbalance between local revenue and expenditure depending on the stage of aging population.