In Korea, local consumption tax (LCT) has been established as a form of VAT revenue
share in 2010. LCT takes 5% of the national VAT revenue as the financial base and
distributes it to the local governments based on the regional sharing ratio of private final
consumption expenditures (vertical equity) and weighting system to mitigate regional
financial disparity (horizontal equity). This paper first evaluates current LCT distribution
in terms of both equities, suggesting that new distribution indices be needed to satisfy both
goals. Before producing them, by reassessing the status and the goal of LCT, this paper
suggests LCT as a new local transfer, not a local tax, should pursue another goal, the
correspondence between production and incidence of regional value-added which is VAT
resource and ultimately LCT base, because its interregional migration is substantial in
Korea. Based on such status and goals, new distribution indices are suggested and the
findings are evaluated.