Countering the Cycle—The Effectiveness of Fiscal Policy in Korea

November 1, 2009

Preview Citation

Format: Chicago

Leif Lybecker Eskesen. Countering the Cycle—The Effectiveness of Fiscal Policy in Korea, (USA: International Monetary Fund, 2009) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The Korean authorities having taken decisive and proactive fiscal measures to help stem the fallout from the current global economic and financial crisis, with the size of the fiscal stimulus well-above the average response of other G20 economies. In this context, a key question is how effective fiscal policy is as a stabilization tool, especially considering the high openness of Korea's economy. Results based on a macroeconomic model calibrated for Korea provide a strong case for using counter-cyclical fiscal policy, especially if measures appropriately focus on spending with a direct demand impact such as investment and targeted transfers. It also demonstrates the importance a complementary monetary response and the benefits to an open economy such as Korea's of global coordination of fiscal stimulus.

Subject: Consumption, Fiscal policy, Fiscal stimulus, Personal income tax, Revenue administration

Keywords: Goods, Reaction function, Stimulus package, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/249
Stock No:

WPIEA2009249
ISBN:

9781451873962
ISSN:

1018-5941

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