They Said the Future Response Fund Would Drain Local Coffers... "Local Tax Revenue to Increase Until 2050 Despite Low Birth Rate"

Report Released: "Long-Term Local Tax Revenue Outlook Considering Population and Household Changes"

Local Tax Revenue to Grow from 86 Trillion Won in 2024 to 212 Trillion Won in 2050...Up 130%

Results Challenge Assumptions of Local Fiscal Decline Due to Low Birth Rates

"Local Tax Revenue Is More Closely Linked to the Number of Households than to Population"

As debates intensify between the Ministry of Planning and Budget and local governments over the establishment of a 162 trillion won Future Response Fund and concerns about reduced local fiscal resources, a new analysis suggests that local tax revenue will continue to rise until 2050, even as the overall population declines—at least for the time being, owing to a continued increase in the number of households.

Local Tax Revenue to Grow from 86 Trillion Won in 2024 to 212 Trillion Won in 2050...Up 130%

According to "A Long-Term Forecast of Local Tax Revenue Considering Changes in Population and Households" by Lee Seokhee, Associate Research Fellow at the Korea Real Estate Board, published recently in the Korea Local Finance Review, local tax revenue (excluding local consumption tax) for 15 metropolitan regions (excluding Sejong and Jeju) is projected to rise 130%—from 86.4 trillion won in 2024 to 212.6 trillion won in 2050. When applying 2024 prices to the 2050 revenue, the real local tax revenue for 2050 is estimated to be 122.4 trillion won, marking a real increase of 41.7%.

This analysis overturns the conventional belief that local tax revenue will inevitably shrink due to population decline caused by low birth rates. While the resident registered population is expected to shrink by 8.5% from 51.12 million in 2025 to 46.77 million in 2050, local tax revenue is forecasted to steadily increase during the same period.

The Key Determinant for Local Tax Revenue: Number of Households, Not Population Size

The report, after analyzing empirical data from 15 metropolitan regions between 2000 and 2024, concludes that the "number of households"—not the total population—is the core variable determining local tax revenue. While population explains little of the changes in local tax income, the number of households, which serve as the actual entities engaging in consumption, earning income, and holding assets, offers a clear explanation of revenue trends. The analysis found that a 1% increase in per capita GRDP boosts local tax revenue by 0.85%, and a 1% increase in the number of households increases local tax revenue by 0.69%.

Despite the decline in overall population, the number of households is projected to rise by 5.0%—peaking at 24.37 million households in 2041 due to more single-person households and household splits. As household numbers grow, home transactions, asset ownership, and fundamental consumer activity are expected to be maintained or expand, supporting robust local tax revenue through the early 2040s. After the peak in 2041, as household numbers begin to drop, growth in real estate transaction taxes and the like will slow or face downward pressure. However, even after household numbers start decreasing post-2040s, overall local tax revenue is forecasted to keep increasing until 2050 thanks to rising incomes and the effects of progressive taxation.

Regional Disparities Widen: Busan and Daegu, with Earlier Decline in Households, Expected to See Revenue Drop from Early 2040s

However, regional disparities based on shifts in household numbers remain a serious issue. Regions where household numbers peak earlier are expected to face tax revenue impacts sooner. In Incheon and Gyeonggi, the number of households is projected to grow until 2045 (+15.1%) and 2044 (+16.7%), respectively, and their real local tax revenues from 2025 to 2050 are forecasted to jump 58.6% and 52.2%, respectively, far surpassing the national average increase of 41.7%. In contrast, Busan and Daegu will see household numbers decline from 2031, leading to much lower real revenue growth rates of just 27.6% and 30.3%, respectively. In particular, real estate transaction taxes—which are especially sensitive to changes in household numbers—are expected to turn negative in Busan after 2041 and in Daegu after 2044.

Policy Implications Amid Fiscal Allocation Debate: "Need to Redesign Tax System Based on Assets and Households"

This analysis offers significant insights amid ongoing debates between the Ministry of Planning and local governments over fiscal resource distribution. After the Ministry established the Future Response Fund and diverted certain national tax revenues into it, local governments responded with strong opposition, arguing that shrinking the overall base of domestic taxes—which serve as the reference for allocating the local allocation tax—would worsen local fiscal difficulties. Although Planning Minister Park Honggeun responded by stating, "The local allocation tax in 2028 will increase to around 100 trillion won", local governments remain uneasy about the future viability of their fiscal resources.

Associate Research Fellow Lee advised, "Given that local governments lack a robust long-term revenue management framework, they need to focus not only on resident population decline, but also closely monitor trends in the number of households, income, housing, and other real sources of tax revenue in order to develop effective medium- to long-term fiscal countermeasures." He further emphasized, "Property taxes will continue to play a key role in regions experiencing population decline, and since physical infrastructure benefits not only local residents but the entire nation, it is necessary to redesign the tax system and fiscal management framework in consideration of these factors."

This content was produced with the assistance of AI translation services.