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

_IMF Working Papers, April 24, 2018_

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## Bibliographic details
- Authors: Edda Zoli, Hou Wang, Douglas Laxton
- Published: April 24, 2018
- Series: IMF Working Papers

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### Summary of the paper
- Adverse demographics and other structural weaknesses impinge on Korea’s long-term fiscal outlook and potential growth.
- Inadequate social protection is creating poverty and dampening consumption.
- The paper uses new estimates of potential growth obtained with a novel multivariate filter.
- Keeping fiscal revenues-to-GDP constant would result in an explosive public debt dynamic in the long term.
- Simulations are conducted with the Flexible System of Global Models to analyze policies that preserve fiscal sustainability while boosting potential growth and social protection.
- Conclusion: with greater revenue mobilization, Korea can stabilize debt-to-GDP well below “dangerous” levels.

### Projections and modeling approach
- Potential growth estimated using a novel multivariate filter (new estimates of potential growth).
- Long-term fiscal outlook projections indicate that a constant fiscal revenues-to-GDP ratio produces an explosive public debt dynamic.
- Policy simulations implemented through the Flexible System of Global Models to quantify effects on debt dynamics, potential growth, and social protection.

### Key findings
- Demographics and structural weaknesses materially weaken Korea’s long-term fiscal outlook and potential growth.
- Inadequate social protection contributes to poverty and reduces consumption.
- Greater revenue mobilization is necessary to stabilize debt-to-GDP well below “dangerous” levels.
- Fiscal inaction (constant revenues-to-GDP) leads to an explosive path for public debt.

### Policy recommendations
- Increase revenue mobilization to restore fiscal sustainability and stabilize debt-to-GDP well below “dangerous” levels.
- Implement higher targeted transfers to the most vulnerable to strengthen social protection and support consumption.
- Adopt fiscal measures to support female labor force participation and employment.
- Complement fiscal measures with product and labor market reforms to boost potential growth and address structural weaknesses.

*Edda Zoli, Hou Wang, and Douglas Laxton. "A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment", IMF Working Papers 2018, 091 (April 24, 2018).*

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## Content in this bundle

- **A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment, WP/18/91, April 2018**
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  - [A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment, WP/18/91, April 2018 (PDF)](/-/media/files/publications/wp/2018/wp1891.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2018/04/24/a-new-strategy-for-koreas-fiscal-policy-in-a-low-growth-environment-45770_