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An Empirical Evaluation of Fiscal Sustainability Near and Far

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  • Joonhyuk Song

    (Korea Development Institute)

Abstract

This paper investigates both fiscal sustainability of the past and the effect of welfare spending on the future fiscal soundness. In theoretical angle, fiscal sustainability is defined by largely two conditions: No-Ponzi Game condition and debt ratio against GDP converge toward equilibrium. Empirical evidence suggests that Korea��s finance has been maintained in a sustainable way in light of both conditions. Also, we find that near- and medium-term fiscal soundness will not be disturbed by social spending, induced by population ageing, due to huge reserves and surpluses produced by the national pension. However, as the pension surpluses draw to an end by 2047, debt-to-GDP ratio will reverse its course to an increasing trend, inflicting longer-term fiscal sustainability.

Suggested Citation

  • Joonhyuk Song, 2009. "An Empirical Evaluation of Fiscal Sustainability Near and Far," Korean Economic Review, Korean Economic Association, vol. 25, pages 133-164.
    • Handle: RePEc:kea:keappr:ker-20090630-25-1-06
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Sustainability; Solvency Condition;

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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