韓國地方財政의 變遷과 그 時代的 特徵, 1910~1940 = Trends in Financing Korean Local Governments and Their Features, 1910~1940

다국어 초록 (Multilingual Abstract)

Korean local finance system was not born out of the natural growth of local governments, it is established with the various levels of local governments in Japanese colonial days, and consequently the system itself had undemocratic and bureaucratic elements from its origin.
As the establishment of various levels of local government attributed to two considerations such as lessening the central burdens and intensifying the authoritative power of the colonial government, the formation of local finance system denoted nothing but providing local governments the necessary means to carry out the above mentioned purposes.
Accordingly, local finance played a significant role in attaining such purposes, but contributed less to the growth of local governments.

Ⅰ. Establishment of Local Governments and Its Special Features

It was about 1910's when the foundation of various units of local governments was set up. The provincial governments were established in 1909, though their status of incorporation were not allowed. In 1914 the first incorporated city governments appeared in our history. And in 1917 the rural governments (myun) were formed. Finally the school districts for Korean education were set up in 1920.
In the earlier days it was common to each level of local governments that local autonomy was denied. Except city governments the other units of local governments were not incorporated. Furthermore, they did not have any machinery through which local opinion was represented. Namely, they lacked local assemblies.
Such an undemocratic system was not improved until 1930, when the local assembly of each unit of local government was set up for the first time. But even the reform of 1930 could not assure the right of local people to participate in the local administraion. The new system not only restricted the right of voting by economic status, but also appointed one half of the provincial assemblymen, and the others were elected indirectly.
At the same time the governor-general held the right to disband each unit of local assembly. The provincial governor had the right to suspend the session of city assembly, and the county commissioner kept the same right over the rural assembly.
In the field of local finance almost the same official intervention was made. The supervising authorities could change the contents of local budgets without any consent of local governments Bedides, the imposition of local taxes, issue of local debt and other important financial matters such as property disposals must be approved by the higher authorities.
In short, such bureaucratic feature of local governments was nothing but a manifestation of colonial officials' intention of making local governments subject to central control.

Ⅱ. The growth and Changes in Local Expenditures

Despite the denial of local autonomy, the expenditures of local governments increased faster than that of the central government between 1910 and 1940. For better comparison, if we take the period from 1914, when city governments were formed, to 1940, it is shown that the expenditures of local governments rose approximately 63 times, but that of the central government 30 times over the years. Particularly, a tremendous rise in the local expenditures was phenomenal after 1937, when the Chino-Japanese War broke out.
The increase of local expenditures was attributed primarily to two considerations. First, expansion of local government activities naturally resulted in the increase of local expenditures. Althought it was phenomenal before 1937, each level of local government gradually took over the governmental activities such as construction of local roads and bridges, local sanitation and health services, local education services and so on, which basically belonged to local responsibility. Second, rise in defence burdens after 1937 not only affected the amount of the central government expenditures, but also gave rise to rapid increase of the local expenditures. Since 1937, numerous new items of local expenditures were appeared in the local budgets. It is impossible to name the whole items, but local defence expenditures were mainly consisted of expenditures for construction of defence reads, operation of anti-aircraft alarm system, the war-time economic control, labor mobilization, and so on.
Thus, the tremendous increase of local expenditures was caused by the different factors before and after 1937. And financial autonomy of local governments was lost more seriously after 1937, because a heavy burdens of defence expenditures alternatively made the relative importance of social welfare service and educational service decrease.

Ⅲ. Changes in Financing the Local Governments Expenditures

It was natural that the rapid increase in local expenditures gave rise to structural changes in local revenues, too. Even though local revenues as well as local expenditures increased faster than the central government revenues, the relative importance of local tax revenues generally declined, but dependance of local finance on the central subsidy or local debt gradually rose over the years.
In 1920 local governments obtained 55.7% of its revenue from local taxes. In 1940, however, the relative importance of local tax revenues declined to 20.2%, and the ratios of grants and local debt to local revenues rose up to 23.8%, 19.1%, respectively.
Such trends in financing local governments expenditures undoubtedly mean that the elements of central control over the local finance were intensified, and alternatively local government lost their financial autonomy, because the relative importance of local tax revenues always denotes the degree of financial autonomy of local governments, and dependence on local debt proves unsound financial situation of local governments, if the local debt is not used for the self-liquidating projects as it was in those days.

Ⅳ. Development of the Local Tax System

In the beginning of the 1910's, the local tax system was very simple. The provincial taxes were consisted of the supplementary land tax, the butchery tax and the market tax. Both in the city and rural areas the supplementary land tax and the household tax played a significant role, but the city governments levied the house tax and business tax, too.
However, the numerous tax was gradually grown out of the establishment of various units of local government and their development. Thus, in the middle of 1920's, the local tax system became seriously complicated and diverse, having its 48 kinds of local taxes.
Most of the local taxes, at that time, was the taxes on things, and there was no tax on person, although the household taxes levied by city and rural units were similar to the personal tax, it was allocated at the base of household. Besides, there were many miscellaneous taxes levied on the vessel, the dog, the electric pole, the water-mill, the pedlars and so on. Accordingly the burdens of the local taxes as a whole were seriously regressive rather than progressive. Furthermore, there were another troublesome factors that made the local burdens unfair, namely, the burdens were concentrated on the particular tax sources such as land income and household.
It is undeniable that the use of the diverse tax system contributed to the increase of tax revenues anyhow, but the diverse tax structure not only made the tax administration complicated but also caused cost of tax collection excessive.
Despite these problems, however, the major reform did not made until 1926, when the Tax Inquiry Commission pioneered with an attempt to reorganize the local tax system as a whole.
The Tax Inquiry Commission recommended, in 1926, to introduce the supplementary income tax into the local tax family, in order to lessen the heavy burdens on land income, and suggested to establish the house tax as a complementary tax to the main local tax, the supplementary income tax, and abolishing numerous miscellaneous local taxes.
The Commission's plan of reform did not carried out immediately, but later reform of the local tax system was made along with the Commission's recommendation. The original plan of setting up the personal tax, however, was little modified. In 1936 the household tax, instead of the supplementary income tax, was established as the core in the local tax family. In thus manner, the local tax system was almost reorganized up to 1936, introducing the personal tax into the system,

Ⅴ. Partiality of Local Tax Burdens and the Role of Household Tax

Against the declining trend of their relative importance, the local tax revenues rose about 15 times between 1914∼1940. It is undeniable that such a tremendous increase of local tax revenues attributed partially to the improvemement of local tax structure, which broadened the local tax family. It was, however, mainly due to adjustment of tax rate to meet the financial requirement over the years.
For instances, the rate of the supplementary land tax rate was raised from 4% to 88% during the periods of 1910∼1940.
In order to equalize the local tax burdens and particularly to lessen the partial burdens on land income, the plan of introducing general personal tax into the local tax family was decided in 1926, and since then the relative importance of the houseold tax revenues gradually increased both in city and rural governments tax revenues. Nevertheless, the relative importance of the supplementary land tax revenues did not decline much. Even in 1930, the supplementary land taxes yielded more than 40% of the total tax revenues. In 1940, it brought in 28% of total.
Considering that the relative importance of the supplementary land tax revenues in 1910's and 1920's was higher than the level of 1930, it is clear that for more than three decades local tax burdens concentrated on land income, making the local tax burdens unfair and partial.
Since the paths of reform were explored to the direction of setting up the personal tax in 1926, the method of assessment of the household tax was reformed several times to apportion fair burdens, improving the base of allocation. It was, however, in 1936 when the faculty base was adopted. Before 1936 the tax was apportioned partly at the base of number of household and partly at the base of amount of direct taxes paid inside the country.
After the reform of 1936 the household tax adopted the base of gross income, but in its levy, taxpayer's living standards and the ownership of property were considered Indeed, such a reform more or less improved partiality of local tax burdens anyhow, but it gave rise to another troublesome issue.
First, the household tax could not abandon its nature of mass taxation. Its minimum taxable income was fixed at the very low level. Namely, even the small amount of income below 100 won was taxed. Of course the statutable minimum taxable income was fixed at the level of 100∼300 won by the places, but it was not applied to those who stayed more than three months in each place. Really the household tax was nothing but the tax with which increase in tax revenue was attempted under the mass burdens.
Second, the household tax caused serious regional disparity of burdens, because the tax rate was not fixed but restricted by the authority, it caused unfair burdens between areas.
Thus, the household tax adopted the faculty base and took the consideration of property ownership of the taxpayers, and it made, however, the tax burdens unfair, because the larger property used to be undervalued than the smaller one.
Thus, the household tax contributed to increase of local revenue and improvement of tax burdens more or less, it could not mitigate the partiality of local tax burdens as it was expected.
It is conceivable that if the burdens of national taxes are progressive, then the unfair and regressive burdens of local tax could not be troublesome. It seems, however, that the national tax was unable to play such a role in those days, because even the national tax system was consisted of taxes on things for the main and the general income tax also increased the mass burdens on ac-count of its defects such as low minimum taxable income, low level of maximum marginal rate, mild progression and so on.

Ⅵ. Centralization of Local Finance and the Crisis of Local Government Finance

While financial autonomy of local governments was restricted from the earlier days, the central interference was more intensified both in revenues and expenditures of local governments in later days.
Even before 1937 the central government charged local bodies with various activities, without assuring of necessary funds. After 1937 the local governments were forced to share the responsibility of defence with the central government. Nevertheless, more strict restriction was imposed on local governments taxing power. Furthermore, some important sources of local government revenues were taken up by the central government.
As a result of such a centralization policy each level of local government came up to face serious financial difficulties. However, the degree of danger and loss of financial autonomy was different by each level of local government.
It was a common phenomenon to each level of local government that the relative importance of tax revenue declined and that of grants or local debt rose. But the greater structural changes had occured in the revenues of each unit of local government.
First, the provincial governments, in 1910, obtained 76.4% of their revenues from the local tax, 18% from grants, and local debt, almost negligible. In 1940, however, they acquired only 16.8% of their revenues from the local tax, 32.6% from grants and 21.4% from local debt.
Second, the city governments, which relied more heavily on non-tax sources than other levels of governments, gained 28% of their revenues from city taxes, 20.8% from grants and 11% from local debt in 1914, when city governments were established. But in 1940, tax revenue accounted for only 9.8%, grants nearly 3% and net brrowing 25.8%.
Third, in 1917, the rural governments collected local tax which was about 67% of the total revenue. Second in importance was non-tax revenue, which brought in 21.7% of total; this followed by the grants with 7.0%, and local debt, none. But in the fiscal year 1940, they raised 47.7% of their revenues from the local tax, 21.1% from grants, 3% from local debt and 21.3% from non-tax revenues.
From these statistical indications we can easily find that, in contrast to decline of the relative importance of tax yields, both in the provincial and rural governments revenues the relative importance of grants rose tremendously, and both in the provincial governments and city governments revenues the role of net borrowing became significant.
It is, however, emphasized that the decline of the relative importance of tax revenues did not mean the decrease of local tax burdens. As it was already mentioned, the local tax yields of each level of government increased tremendously over the years.
Thus, we can conclude that the financial crisis of each level of local government was mainly due to irresponsible centralization policies and in part, to inflexible tax system in those days.

목차 (Table of Contents)

• 序 言
• Ⅰ. 地方團體의 創設과 그 性格
• Ⅱ. 地方歲出의 膨脹과 그 支出方向
• Ⅲ. 地方歲入構造의 變化
• Ⅳ. 地方稅制의 變遷
• Ⅴ. 住民負擔의 偏重과 戶別稅의 性格
• Ⅵ. 地方財政의 中央集權化와 單體財政의 破綻