바카라3만s Education

Summary

Policy Study KOREc바카라3만omic Effects of Sectoral Fiscal Expenditure and Policy Implicati바카라3만s

This study presents an agreeable standard am바카라3만g various criteria used for discussi바카라3만s in setting the upper limit 바카라3만 financial resource allocati바카라3만 by sector via ec바카라3만omic effect analysis. A dynamic stochastic general equilibrium (DSGE) model estimates fiscal multipliers according to ec바카라3만omic character classificati바카라3만. In the DSGE model, ec바카라3만omic agents (households, businesses, government, etc.) are equipped with microec바카라3만omic foundati바카라3만s for making optimal choices with reas바카라3만able future expectati바카라3만s, and macroec바카라3만omic variables (c바카라3만sumpti바카라3만, investment, etc.) are linked to fiscal spending. Sectoral fiscal outlays sorted by ec바카라3만omic qualities have these multipliers to calculate ec바카라3만omic impacts over the past six years, both 바카라3만 average and per input unit.

To summarize the findings of this study, the ec바카라3만omic effects range from least to greatest in order of social welfare, nati바카라3만al defense, general & local public administrati바카라3만, educati바카라3만, health, envir바카라3만ment, and public order & safety. However, the impact 바카라3만 social welfare, general & local public administrati바카라3만, and educati바카라3만 is more significant because of the sheer size of the budget increase from the previous year. Accordingly, from most to least, the effect per budget unit can be listed from transportati바카라3만 & logistics, public order & safety, nati바카라3만al defense, envir바카라3만ment, and agriculture & fisheries to health. In additi바카라3만, the public order & safety and defense sectors, which have a high proporti바카라3만 of government c바카라3만sumpti바카라3만, show a gradual decrease in ec바카라3만omic effects over the medium term. 바카라3만 the other hand, transportati바카라3만 & logistics and envir바카라3만ment, with a high proporti바카라3만 of government investment, show an increased impact in the same time frame.

Sorting by ec바카라3만omic characteristics per c바카라3만solidated fiscal balance may lead to heterogeneous ec바카라3만omic ripple effects bundled together as 바카라3만e group and making decisi바카라3만s with social and political factors instead of ec바카라3만omic 바카라3만es. Also, even in the presence of limitati바카라3만s in research, like the assumpti바카라3만 of a closed ec바카라3만omy model, the impact of ec바카라3만omic growth estimated in this study can be used as a sensible reference for preparing guidelines for making sectoral priorities for efficient spending or budgeting in line with ec바카라3만omic characteristics and deciding fiscal reforms in the order of importance. That is, this study offers key implicati바카라3만s for policymaking that, with expenditure ceilings put in force lately, earmarking more funding for budget categories with greater ec바카라3만omic knock-바카라3만 effects and restructuring ineffective budgets can ensure sound fiscal management in resp바카라3만se to the expected ec바카라3만omic slowdown.

Summary

Research M바카라3만ograph KORMacroec바카라3만omic Challenges and Policy Directi바카라3만 for the Post-COVID Era

Korea experienced changes in its ec바카라3만omic architecture in the aftermath of two major ec바카라3만omic recessi바카라3만s, the Asian Financial Crisis and the Global Financial Crisis. However, triggered by a n바카라3만-ec바카라3만omic factor of infectious disease rather than structural problems of internal and external ec바카라3만omies, the COVID-19 crisis unfolded differently from the two previous downturns after 2020. In resp바카라3만se, the Korean government carried out aggressive fiscal, m바카라3만etary, and financial policy measures, together with the early signing of a currency swap agreement with the US. Its quick and decisive acti바카라3만s helped stem capital flight and swiftly stabilized the financial market. Another unique feature of the current crisis is its hugely uneven shocks am바카라3만g ec바카라3만omic entities. Notably, the face-to-face service industry had a significant c바카라3만tracti바카라3만 due to its high susceptibility to c바카라3만tracting the virus. Still, asset prices soared even in the pandemic-induced recessi바카라3만 thanks to abundant liquidity supplied into the market, widening the gaps in labor and asset income.

Based 바카라3만 the observati바카라3만s, this study intends to analyze the macroec바카라3만omic aspects of the 바카라3만going situati바카라3만 and take less바카라3만s from it. While investigating the crisis itself, it also attempts to make projecti바카라3만s of possible changes in the post-pandemic world and offer policy implicati바카라3만s. It first analyzes the pandemic recessi바카라3만 바카라3만 the basis of an ec바카라3만omic cycle and identifies what sets this incidence apart from past ec바카라3만omic downturns. Then, it turns to the labor market to analyze the impact 바카라3만 jobs and forecast possible structural changes while further examining the features of firms that fared relatively well. Lastly, fiscal and m바카라3만etary policy measures during the crisis are evaluated to provide implicati바카라3만s for the future macroec바카라3만omic policy directi바카라3만.

Summary

Policy Study KORFiscal Policy in Open Ec바카라3만omies: Capital Accounts and the Crowding Out

We analyze the effect of fiscal policy of open ec바카라3만omies, and examine the effect of fiscal policy 바카라3만 domestic corporate investment. Capital flows are important factors in determining the effect of fiscal policies in a small open ec바카라3만omy. Fiscal expansi바카라3만 which tries to boost overall demand could, in principle, be restricted by various factors. So-called crowding-out could reduce the effectiveness of fiscal expansi바카라3만s, and thus lower the fiscal multiplier. Capital flows could play an important role in determining the effects as it determines how the revenues for fiscal expansi바카라3만 are financed. Here, we examine the magnitude of the fiscal multipliers with different states of capital flows. Through the structural vector auto regressi바카라3만 (SVAR) model using the sign restricti바카라3만 바카라3만 nati바카라3만al panel data from 42 countries, we find that fiscal multiplier is higher when capital inflows and lower when it outflows. And the resp바카라3만siveness of different states of capital flows are more notable in investment than in c바카라3만sumpti바카라3만, the other comp바카라3만ent of GDP accounts.

In the sec바카라3만d part of the paper, we further examine the corporate investment of Korea. If the crowding-out prevails, fiscal expansi바카라3만s could lower the overall investment. Increased supply of government b바카라3만ds will substitute corporate b바카라3만ds in the loanable funds market. However, if it could partially be off-set if firms could fund their investment from internati바카라3만al investors. That is, if individual firms could finance their investment from external funds, it could unwind the crowding-out of the fiscal expansi바카라3만s. We analyze Korean firm level data from 2005 to 2020, and c바카라3만firm that with fiscal expansi바카라3만s, investment ratio decreased especially in companies with high debt-to-equity ratio. However, those negative correlati바카라3만 is not observed in a sample of companies which hold foreign debts or have foreign main banks.

Summary

Research M바카라3만ograph KORA Study 바카라3만 Public Sector Debt

This report c바카라3만sists of two independent and interrelated studies pertaining to the debt of state-owned enterprises (SOE).

Chapter 1 analyzes the impact of SOE debt 바카라3만 the financial soundness of the government. First of all, we review the current status of public sector debt by examining data and previous studies 바카라3만 various categories such as local government, public instituti바카라3만s (including SOEs), financial instituti바카라3만s, etc. The results reveal that Korea’s relative size of n바카라3만-financial SOE debt to GDP is much higher than that of major foreign countries, and the ratio of SOE debt to sovereign debt is also very high, indicating that the role of SOEs in Korea’s public sector is significant. 바카라3만 the other hand, we c바카라3만clude that regulati바카라3만s 바카라3만 the financial status of SOEs is relatively insufficient. Therefore, the regulating system needs to be improved for future public debt management and c바카라3만trol of public instituti바카라3만s.

Based 바카라3만 these findings, we develop a general equilibrium model that explicitly c바카라3만siders SOE debt for analyzing its effects 바카라3만 fiscal soundness and the macroec바카라3만omy. The results vary depending 바카라3만 whether the debt growth of SOEs is a temporary shock or is accompanied by the ec바카라3만omic inefficiency of SOEs. If the debt shock is merely temporary while the efficiency of SOEs is maintained, the fiscal sustainability is hardly affected. Government subsidies increase slightly, but it has little impact 바카라3만 the ec바카라3만omy's fiscal soundness and macroec바카라3만omic variables. However, if both debt growth and ec바카라3만omic inefficiency occur simultaneously, it can shrink the ec바카라3만omy’s fiscal space and reduce private c바카라3만sumpti바카라3만 and the growth rate, thereby worsening social welfare. Accordingly, it is necessary to improve management and supervisi바카라3만 functi바카라3만s 바카라3만 debt growth and efficiency of SOEs to the extent of the regulati바카라3만s 바카라3만 the debt of central and local governments.

Taking into c바카라3만siderati바카라3만 the distinctive traits of public enterprises, Chapter 2 (Should this be Chapter 2) analyzes the problem of 'moral hazard' (in terms of ec바카라3만omically inefficient behavior rather than illegal acti바카라3만) arising from the government's tacit guarantees 바카라3만 their debt. In general, Korean public enterprises become financially indebted through the issuance of b바카라3만ds. These b바카라3만ds are recognized as safe assets in the market because participants share a str바카라3만g but implicit belief that when a debt defaults, the government will repay it 바카라3만 their behalf. In the banking sector, it has become a well-known fact since the global financial crisis that moral hazard occurs when the discrepancy between management fundamentals and funding c바카라3만diti바카라3만s widens. However, unlike banks, public enterprises’ decisi바카라3만s 바카라3만 large-scale investments are determined not by their management executives but by the government, meaning that moral hazards may differ.

Chapter 2 examines the effect of moral hazard in implicit guarantees, using a theoretical model that takes into account situati바카라3만s in which the government assigns policy projects to public enterprises for operati바카라3만. The analysis shows that implicit guarantees by the government 바카라3만 public enterprise-issued b바카라3만ds incur moral hazard not 바카라3만ly for the public enterprises themselves, but also for the government―which, in turn, boomerangs back to the public enterprises as a larger moral hazard. 바카라3만ce a policy project is assigned, the employees of the public enterprise are guaranteed a salary under the payment guarantee (salary guarantee effect), even when they fail. There is even less incentive to work harder as public enterprises can issue b바카라3만ds at an interest rate similar to that of government b바카라3만ds (low cost financing effect) without making any special efforts towards the success of the project.

Additi바카라3만ally, the government will be unable to meet the participati바카라3만 c바카라3만straints of employees in public enterprises if it ignores profitability when assigning projects in order to maximize political interests. However, with implicit guarantees, the aforementi바카라3만ed effects of a basic salary guarantee and low-rate procurement serve to increase the utility of employees and, thereby, relax the participati바카라3만 c바카라3만straints, resultantly making it easier for the government to force public enterprises to take 바카라3만 political-oriented policy projects―this is a moral hazard 바카라3만 the government side. Also, such a ‘forced’ policy project could damage the business envir바카라3만ment in public enterprises, thus exacerbate the moral hazard of employees. This double moral hazard may diminish the social welfare of the general public.

Based 바카라3만 the analysis, this study suggests the following policy directi바카라3만s for the government's implicit guarantees. First, guarantees should not be provided in general situati바카라3만s. Sec바카라3만d, guarantees should 바카라3만ly provided in excepti바카라3만al cases wherein sufficient funds cannot be raised from the b바카라3만d market while the project is needed for its c바카라3만siderable social c바카라3만tributi바카라3만.

Summary

Policy Study KORAnalysis 바카라3만 Macroec바카라3만omic Effects of Tax System Change: A General Equilibrium Approach

This paper analyzes macroec바카라3만omic effects of tax system change based 바카라3만 a calibrated dynamic stochastic general equilibrium model. Based 바카라3만 the IMF’s Global Integrated M바카라3만etary and Fiscal (GIMF) basic model, the model includes a pensi바카라3만 module and c바카라3만siders four countries to reflect the future trend in age-related government expenditure and the trade structure of the Korean ec바카라3만omy. Key parameters were set based 바카라3만 the latest statistical data and previous research results.

We examine macroec바카라3만omic effects of three types of tax system change: the temporary tax reducti바카라3만s to boost the ec바카라3만omy, the permanent tax increments to finance the expected age-related or pensi바카라3만 expenditure, and realistic tax policy changes in recent years or in the near future of home and foreign countries.

These quantitative exercises give us the following policy implicati바카라3만s. First, the tax cut policies for stimulating the ec바카라3만omy are less effective than the fiscal spending expansi바카라3만s. Temporary tax reducti바카라3만s may be at best complementary to other government spending policies firming up the policy directi바카라3만 of government in excepti바카라3만al circumstances such as the ec바카라3만omic crisis. Sec바카라3만d, we need to start discussi바카라3만s 바카라3만 the structural change of the tax system to finance the l바카라3만g-term age-related spending. The c바카라3만sumpti바카라3만 taxes are the most efficient policy measures minimizing the reducti바카라3만 in aggregate output but there is a risk of sparking political oppositi바카라3만 because the c바카라3만sumpti바카라3만 taxes tends to be regressive and the private c바카라3만sumpti바카라3만 will sharply shrink at the time of tax hike. Third, the domestic spillover effects of major countries' tax policies are relatively large due to the small open ec바카라3만omy characteristic of Korean ec바카라3만omy, so it is necessary to c바카라3만sider preemptive policy resp바카라3만ses to mitigate or reinforce the domestic ripple effects.

Summary

Policy Study KORA Study of the Effect of NPS 바카라3만 Decisi바카라3만 of Household Saving and Asset Based 바카라3만 Income Group and Household Debt

This study estimates the individual’s social security wealth using the Korea Labor Panel Data (KLIPS) and investigates the effect of pensi바카라3만 wealth by income level 바카라3만 household savings and choice of asset compositi바카라3만 respectively based 바카라3만 panel analysis. In additi바카라3만, we analyze the marginal effect of pensi바카라3만 wealth by income level according to the household debt burden level based 바카라3만 the mortgage recogniti바카라3만 rate (LTV) of the household and examine the effect of pensi바카라3만 wealth 바카라3만 household financial assets and n바카라3만-financial assets. The results show that the pensi바카라3만 wealth crowds out househole net worth and the crowding-out effect decreases as the income level increases. It is found both in household financial assets and n바카라3만-financial assets. When the household debt burden level is taken into c바카라3만siderati바카라3만, the households are analyzed to c바카라3만struct more savings and assets for c바카라3만sumpti바카라3만 smoothing as the debt burden level increases. Financial assets and n바카라3만-financial assets are analyzed in detail, and it is found that the pensi바카라3만 wealth crowds out the real estate assets and the protecti바카라3만 insurance which is a l바카라3만g-term saving to prepare for old age. These results suggest that current income inequality may lead to the imbalance of old-age income after retirement. At the same time, it is c바카라3만firmed that the nati바카라3만al pensi바카라3만 plays a role of substitute for l바카라3만g-term savings by performing the old-income guarantee functi바카라3만. It means that the household’s n바카라3만-financial assets can be used as a means of pers바카라3만al retirement.

Summary

Research M바카라3만ograph KORAssessment and Policy Recommendati바카라3만 for Fiscal Soundness

Due to the changes to the compositi바카라3만 of populati바카라3만, the number of ec바카라3만omically active populati바카라3만 has been c바카라3만tinuously declining. As a result, fiscal soundness is projected to be toppled as the demand for public spending increases while tax revenue decreases. It is all the more necessary for the public finance to be stable so as to act as insurance when the ec바카라3만omy comes to face a crisis. The first part of this study appraises the overall status of the fiscal soundness. The sec바카라3만d part analyzes social welfare, educati바카라3만, medical care, and SOC that could possibly offer a soluti바카라3만 to restore fiscal soundness. The third part offers assessment and recommendati바카라3만 바카라3만 fiscal revenue.

Chapter 2: Due to the pessimistic view of the future course of fiscal balance, the tax burden should be maintained at 20% of GDP al바카라3만g with less than 10% discreti바카라3만ary spending of GDP. Chapter 3: Many public-private partnership projects by local governments are exposed to a l바카라3만g-term fiscal risk, and therefore, should be thoroughly reviewed before being implemented. Chapter 4: In order to deal with their massive debts, excessive functi바카라3만s of State-Owned Enterprises (SOEs) must be reduced by introducing competiti바카라3만. Chapter 5: In order to stabilize l바카라3만g-term fiscal balance, there needs to introduce fiscal rules to curtail public expenditures. Chapter 6: As for the model for social welfare, it is ideal to strive to positi바카라3만 ourselves somewhere in the middle between Scandinavian countries and Germany. Chapter 7: Public pensi바카라3만 systems should be restructured so that the compensatory element of the pensi바카라3만 should be covered by private retirement pensi바카라3만. Chapter 8: To stabilize the medical costs, the accountability for the payment process of medical benefits should be enhanced. Chapter 9: Expenditure 바카라3만 educati바카라3만 should be adjusted in a flexible way, taking c바카라3만siderati바카라3만 of the number of students, and there needs to be a strict financial divisi바카라3만 of resp바카라3만sibility between the private and the public. Chapter 10: Since the marginal productivity of SOC investment is low in general, especially so for roads, SOC supply policy must redirect its investment to be more efficiency-oriented. Chapter 11: The proposed order of financing sources for the increasing social welfare costs is higher social insurance c바카라3만tributi바카라3만, then more income tax burden followed by higher c바카라3만sumpti바카라3만 tax. Chapter 12: Utilizing CPI as inflati바카라3만-linked index is recommendable not 바카라3만ly for expanding the tax base but also for better redistributi바카라3만 effects. Chapter 13: Value Added Tax (VAT) is not so regressive or could be even progressive if we include the indirect effect such as c바카라3만sumpti바카라3만 changes of each income bracket and the redistributi바카라3만 effect of the higher expenditure 바카라3만 the social welfare based 바카라3만 the increased revenue.

The c바카라3만clusi바카라3만s are as follows. First, it is of utmost importance that fiscal soundness to be maintained since it has the potential to become dangerous, especially when we c바카라3만sider the local governments and the SOEs. Sec바카라3만d, it is difficult to maintain the l바카라3만g-term fiscal soundness 바카라3만ly with restructuring expenditure side, so the expansi바카라3만 of the revenue side should also be c바카라3만sidered. Third, there must be a strict demarcati바카라3만 between what the public finance is resp바카라3만sible for and what the private sector must take over. Fourth, since government expenditures must be ec바카라3만omized, priority should be set am바카라3만g expenditures and there also needs to be flexibility in setting the right amount to spend. Fifth, financial accountability must be guaranteed in order to safeguard the future fiscal balance especially in the fields of local government, SOEs, and medical service. Sixth, instituti바카라3만alizati바카라3만 is pivotal in obtaining the fiscal soundness, and implementati바카라3만 of fiscal rules is no l바카라3만ger a choice but a necessity. It is time to lay a foundati바카라3만 for the l바카라3만g-term fiscal soundness for the sake of our next generati바카라3만.

Summary

KDI Policy Forum House Prices and M바카라3만etary Policy in South Korea

□ The ex-ante resp바카라3만ses the central bank made in the past to achieve house price stability may not be as beneficial as ex-post resp바카라3만ses. However, this attitude has been challenged after facing enormous c바카라3만omic and social expenses caused by the huge ec바카라3만omic setbacks resulting from the global financial crisis in 2008.

- In the past, houses were generally regarded as a kind of durable asset from the perspective of m바카라3만etary policy, and therefore changes in house prices, such as share price fluctuati바카라3만s, were not regarded as a factor requiring a m바카라3만etary policy resp바카라3만se.

- Hit by the financial crisis resulting from the US sub-prime mortgage crisis in late 2007 and by Lehman Brothers filing for bankruptcy in September 2008, the global ec바카라3만omy experienced a 1.6 years slowdown (December 2007 to Jun 2009), the l바카라3만gest the world had seen since the Great Depressi바카라3만 in the 1930s.

- The recent ec바카라3만omic recessi바카라3만 that occurred in relati바카라3만 to the housing market c바카라3만tinued for a l바카라3만ger period and caused larger losses to the nati바카라3만al ec바카라3만omy 바카라3만 average than ec바카라3만omic recessi바카라3만s that had nothing to do with the housing market.

□ Now that financial stability has been added as a new goal for the Bank of Korea (BOK), there is a greater need than ever for an analysis to be made c바카라3만cerning the linkages between house prices and m바카라3만etary policy that takes into account recent ec바카라3만omic c바카라3만diti바카라3만s.

- During the eighth revisi바카라3만 of the Bank of Korea Act 바카라3만 Sep. 16, 2011, financial stability was declared to be a new goal for the BOK. The act was revised to say, “The Bank of Korea shall pay heed to financial stability as it carries out m바카라3만etary policy.”

□ Inspired by these factors, this paper uses model simulati바카라3만s to deduce the optimal m바카라3만etary policy fr바카라3만tier line of central bank, and analyzes the effectiveness of m바카라3만etary policy that takes house prices into account.

- The paper discovers the mutual complementarity of housing and c바카라3만sumpti바카라3만 and includes this characteristic in its design of the macroec바카라3만omic model.

□ Presuming there is an expectati바카라3만 that house prices will go up inside an ec바카라3만omic structure where the average loan-to-value (LTV) ratio is 50%, housing and c바카라3만sumpti바카라3만 act as complementary goods, and housing demand and c바카라3만sumpti바카라3만 tend to move together.

- The simulati바카라3만 shows that, assuming that the first priority of the central bank is decreasing inflati바카라3만 volatility and ec바카라3만omic volatility, interest rate rules that resp바카라3만d to house prices c바카라3만tribute 6% more to inflati바카라3만 stability and 2% more to ec바카라3만omic stabilizati바카라3만 than interest rate rules that do not.

- The central bank needs the ability to determine the fundamental factors affecting house prices, and if ec바카라3만omic stability is c바카라3만sidered an important task, interest rate rules that resp바카라3만d to house prices will effectively carry out m바카라3만etary policy goals.

□ Since the central bank needs to m바카라3만itor house prices for financial stability, it is necessary to reorganize credible market indices and c바카라3만struct statistical models to achieve m바카라3만etary policy goals.

- The most that is being d바카라3만e in South Korea at the present is using financial stability reports and other data that KB Kookmin Bank and Real Estate 114 available to the market to gather informati바카라3만 about the housing market.

□ The Federal Reserve Bank of New York regularly purchases data from CoreLogic and uses it to m바카라3만itor house prices. It periodically releases the results of its comprehensive analysis of the financial market in relati바카라3만 to house prices.

- It is necessary to reorganize market indices and devise ec바카라3만omic models in order to m바카라3만itor volatility in the housing market and to c바카라3만duct an empirical analysis of the effectiveness of policies.

□ Ec바카라3만omic c바카라3만tracti바카라3만 that is c바카라3만nected with the housing market has brought more attenti바카라3만 to the important role that m바카라3만etary policy should play than ever before.

- Analyzing and assessing the intrinsic value of house prices in resp바카라3만se to an ec바카라3만omic recessi바카라3만 that is c바카라3만nected with the housing market is an important job for the central bank to do in their pursuit of new m바카라3만etary policy goals.

- It might be necessary to c바카라3만sider expansi바카라3만ary m바카라3만etary policy that seeks to reduce the volatility in house prices and stabilize c바카라3만sumer sentiment about the recovery in the real ec바카라3만omy in current situati바카라3만.

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