Budgetary pressures imposed by Korea's rapidly aging population and declining fertility rates underscore the urgency of a medium-term fiscal consolidation framework. The author presents a plan for fiscal consolidation and budget reform in which a new parliamentary budget process would be established, centered on a fiscally constrained budget resolution that would be scheduled for adoption prior to consideration of revenue or spending bills.

Fiscal Consolidation and Budget Reform in Korea

The Role of the National Assembly

Kun-Oh Kim

ResearchPublished Jan 19, 2012

Cover: Fiscal Consolidation and Budget Reform in Korea
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Korea's fiscal responses to the financial crises of 1997–1998 and 2007–2010 led to a rapid accumulation of budget deficits and national debt. The Korean government needs to take preemptive measures to retain room for countercyclical policies. Korea's export-dependent economy is vulnerable to external shocks and Korea's rapidly aging population and declining fertility rate are imposing additional budgetary pressures on the government. Thus, restoring fiscal soundness to the Korean economic system is an urgent priority for Korean policymakers. The author presents a plan for fiscal consolidation and budget reform in which the Korean National Assembly (NA) would establish a new budget process, centered on a fiscally constrained budget resolution that would be scheduled for adoption prior to consideration of revenue or spending bills. Budget enforcement procedures similar to those employed by the U.S. Congress could be applied to Korea if tailored to the NA's unique constitutional constraints and budgetary processes.

Key Findings

Korea's Economy Remains Vulnerable to External Shocks, and Future Shocks Will Likely Impose a Further Fiscal Burden

  • The size of the national debt has increased dramatically.
  • Korea's debt-to-GDP ratio continues to rise.
  • Budgetary pressures imposed by Korea's rapidly aging population and declining fertility rates underscore the urgency of a medium-term consolidation framework.

A Strong Political Consensus for Fiscal Consolidation Is Needed for Meaningful Budget Reform

  • The Korean government should take preemptive measures to retain room for countercyclical policies.
  • Success will depend on the willingness of the legislature to act to restore a balanced budget and achieve fiscal consolidation.

Recommendations

  • The National Assembly (NA) should enact legislation to establish a new parliamentary budget process centered on a fiscally constrained budget resolution that would be scheduled for adoption prior to consideration of revenue or spending bills.
  • This legislation should be buttressed by a combination of legislative tools to enhance Korea's capacity to enforce budget constraints.
  • Budget enforcement procedures similar to those employed by the U.S. Congress could be applied to Korea if tailored to the NA's unique constitutional constraints and budgetary processes.

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Document Details

  • Copyright: RAND Corporation
  • Availability: Web-Only
  • Year: 2012
  • Pages: 38
  • Document Number: OP-348-CAPP

Citation

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Kim, Kun-Oh, Fiscal Consolidation and Budget Reform in Korea: The Role of the National Assembly, RAND Corporation, OP-348-CAPP, 2012. As of September 12, 2024: https://www.rand.org/pubs/occasional_papers/OP348.html
Chicago Manual of Style
Kim, Kun-Oh, Fiscal Consolidation and Budget Reform in Korea: The Role of the National Assembly. Santa Monica, CA: RAND Corporation, 2012. https://www.rand.org/pubs/occasional_papers/OP348.html.
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The research described in this report was conducted within the RAND Center for Asia Pacific Policy (CAPP) under the auspices of the International Programs of the RAND Corporation.

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