A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment

April 24, 2018

Preview Citation

Format: Chicago

Edda Zoli, Hou Wang, and Douglas Laxton. A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment, (USA: International Monetary Fund, 2018) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Adverse demographics and other structural weaknesses impinge on Korea’s long-term fiscal outlook and potential growth. Moreover, inadequate social protection is creating poverty and dampening consumption. The paper presents projections of Korea’s fiscal outlook, using new estimates of potential growth obtained with a novel multivariate filter. It shows that keeping fiscal revenues-to-GDP constant would result in an explosive public debt dynamic in the long term. Then, through simulations of the Flexible System of Global Models, the paper analyzes policies to preserve fiscal sustainability, while boosting potential growth and social protection. It concludes that with greater revenue mobilization, Korea can stabilize debt-to-GDP well below “dangerous” levels. Policies to address Korea’s challenges include higher targeted transfers to the most vulnerable and fiscal measures to support female labor force participation and employment, accompanied by product and labor market reforms.

Subject: Expenditure, Fiscal policy, Potential output, Production, Productivity, Public debt

Keywords: Aging, Deficit, GDP, GDP ratio, Global, Korea's productivity catch-up, Korea's total factor productivity, Labor market, Long-term fiscal sustainability, Potential output, Product market, Product market distortion, Product market regulation, Production function, Productivity, Structural reforms, WP, Yield productivity gain

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/091
Stock No:

WPIEA2018091
ISBN:

9781484352724
ISSN:

1018-5941

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