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Fiscal Policy Issues in Korea after the Current Crisis

Author

Listed:
  • Kiseok Hong

    (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 Koreas 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 Koreas fiscal stimulus in 2009, while having contributed greatly to the economys fast recovery, was unusually large compared with typical fiscal responses during economic downturns. This paper also investigates whether the rapid increase in Koreas fiscal debt burden is admissible in terms of long-term sustainability. Although existing evidence suggests that Koreas 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.

Suggested Citation

  • Kiseok Hong, 2010. "Fiscal Policy Issues in Korea after the Current Crisis," Macroeconomics Working Papers 22754, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:22754
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    File URL: http://www.eaber.org/node/22754
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Weonho Yang & Jan Fidrmuc & Sugata Ghosh, 2012. "Macroeconomic Effects of Government Spending Shocks: New Evidence Using Natural Disaster Relief in Korea," CESifo Working Paper Series 3943, CESifo.
    2. Alymkulova Nargiza Bakytovna & Atabaev Nurlan Uzgenovich & Ganiev Junus Mashrapovich, 2016. "Var - analysis of Global financial economic crisis impact on public budget and unemployment: evidence from the economy of the Kyrgyz Republic," Экономика региона, CyberLeninka;Федеральное государственное бюджетное учреждение науки «Институт экономики Уральского отделения Российской академии наук», vol. 12(4), pages 1090-1101.
    3. Nargiza Alymkulova & Nurlan Atabaev & Junus Ganiev, 2016. "Var — analysis of global financial economic crisis impact on public budget and unemployment: evidence from the economy of the Kyrgyz republic," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(4), pages 1090-1101.
    4. Hyeon-Wook Kim, 2012. "Macroeconomic Policies of Korea to Cope with the Crisis," Chapters, in: Maurice Obstfeld & Dongchul Cho & Andrew Mason (ed.), Global Economic Crisis, chapter 9, Edward Elgar Publishing.

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    More about this item

    Keywords

    Fiscal Policy; Republic of Korea; global financial crisis; fiscal stimulus; fiscal consolidation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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