Fiscal Policy Issues in Korea after the Current Crisis

Kiseok Hong

No 225, ADBI Working Papers from Asian Development Bank Institute

Abstract: This paper examines fiscal policy issues in the Republic of Korea (hereafter Korea) after the 2009 global financial crisis, including the timing of fiscal policy responses, the effectiveness of expansionary measures, and the long-term implications for government debt. In order to evaluate more accurately Korea's fiscal response since late 2008, this paper conducts an empirical analysis using historical data from Korea and other countries and derives stylized patterns on counter-cyclicality of fiscal policy and its role in the recovery process. The analysis suggests that Korea's fiscal stimulus in 2009, while having contributed greatly to the economy's fast recovery, was unusually large compared with typical fiscal responses during economic downturns. This paper also investigates whether the rapid increase in Korea's fiscal debt burden is admissible in terms of long-term sustainability. Although existing evidence suggests that Korea's fiscal debt is still manageable, the sizeable deficit and the increasing trend in the debt to GDP ratio in recent years call for vigilance. The paper concludes with some suggestions for fiscal consolidation in Korea: a stricter practice of medium-term budget planning, expansion of automatic stabilizers and reduction of discretionary components, use of more comprehensive measures of government debt, and further reforms in the national pension system are discussed.

Keywords: korean fiscal policy; korean government debt; korean economic recovery (search for similar items in EconPapers)
JEL-codes: E30 H50 H60 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-07-02
New Economics Papers: this item is included in nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Fiscal Policy Issues in Korea after the Current Crisis (2010)
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