Conference Agenda

This study empirically examines the impact of net assets held by local governments on regional economic growth during the economic crisis caused by COVID-19, proposing the potential use of net assets as a new fiscal indicator in local finance. Net assets, calculated as the difference between assets and liabilities, are a key accrual-based indicator used in the IMF’s Government Finance Statistics (GFS) to reflect a government's fiscal position and sustainability. However, this concept has received little attention in South Korea.

The analysis targets 226 basic local governments across the country over the period from 2014 to 2020. Using panel data and a fixed effects model, the study finds that net assets have a statistically significant positive impact on per capita gross regional domestic product (GRDP) in the following year during crisis periods. This indicates that local governments with higher net assets achieved greater economic growth under national crises. Additionally, net assets significantly affect the growth rate of major fiscal expenditures, such as economic development spending and total expenditure, helping to mitigate expenditure cuts or enhance spending increases during crises.

These findings suggest that net assets, which indicate fiscal soundness and payment capacity, influence regional economic growth and are particularly valuable in times of crisis. The study provides important implications: adopting a stock-based accrual accounting approach focused on net assets can improve local fiscal operations, boost regional economies, and enhance resilience to crises.