The Korea Local Administration Review

This study scrutinizes the influence of regional specificity on the own revenues of local governments, with an emphasis on island regions. Frequently, claims are made by local finance authorities and stakeholders about the distinctiveness of a region, arguing that such uniqueness should be incorporated into local fiscal policies. However, studies addressing regional specificity or local fiscal policies that consider regional peculiarity are scarce. Regional specificity in local finance can only be achieved if it is limited to certain regions, pertinent to numerous factors influencing local finance, and systematically persistent. The recently noted issue of population decline, although capturing the attention of scholars and local finance policymakers, does not satisfy these criteria.
This research substantiates that island regions possess specific characteristics that could influence local own revenues, as demonstrated by domestic studies and foreign studies focusing on island states. A straightforward comparative analysis revealed that local tax revenues, non-tax revenues, and own revenues of island regions are significantly less than those of non-island areas. Further, to ascertain strict causal relationships, the study employed a random effects model, which controlled for local political, economic, demographic, and other influencing factors. The findings validated that island regions (the cause) have a substantial negative impact on local tax revenues and their own revenues (the effect).
Preceding research and local fiscal policies tend to concentrate on features common to many regions, rather than the peculiarities of specific areas. As such, by scrutinizing how unique regional characteristics, like those of island regions, can influence local finance, this study suggests the need for a new regional differential local finance relationship.