• Economic Analysis
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• v.27 no.3
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• pp.33-60
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• 2021

This study estimates the fiscal multiplier using Input-Output table panel data from year of 2010 to 2018. Considering the endogeneity of the government expenditure, this study uses the share of government expenditure by sector in the initial period as an instrument variable. The estimation from the panel fixed effect instrumental variables model shows that the estimate for the current period of government expenditure is 1.15~1.22 and the estimate for the cumulative multiplier is 1.23~1.32 depending on the method of controlling time trend. Since the general equilibrium effect absorbed by the time-fixed effect in the estimation equation, the estimated multiplier in this study may be different from the multiplier of the economy as a whole. The general equilibrium effect depends on the response of monetary policy, changes in tax policy, and interaction between sectors.

• KDI Journal of Economic Policy
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• v.35 no.2
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• pp.71-105
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• 2013

Now that fiscal soundness is increasingly important influenced by the euro area fiscal crisis, early budget execution has been under the spotlight as a tool for economy control, other than typical expansionary method, such as supplementary budget. Basically, early budget execution is a fiscal policy instrument that reponses to economic fluctuations through modifying the inter-temporal allocation of fiscal expenditure within budget, without affecting fiscal soundness. This study empirically examines how effective the intert-temporal reallocation of fiscal expenditure is in economy control. Using Korea's Consolidated Fiscal data, the size of inter-temporal reallocation of fiscal expenditure is defined as changes of fiscal expenditure for one year excluding seasonal factors and used to explain real economic growth rate, a dependent variable. The result shows that the macroeconomic effect of the inter-temporal reallocation turns out meaningful in general, though some policy time lag exists. Meanwhile, a simulation using macroeconomic model finds that overall effect on economic growth is not large because increase in fiscal expenditure allocation at a certain point of time is canceled by the opposite direction within the same fiscal year. However, the inter-temporal reallocation is found to reduce volatility of key macroeconomic variables so as to contribute to partially stabilizing macroeconomy. In particular, such effect of economic stabilization seems to be highly apparent at the time of financial crisis, but not very noticeable in normal economic cycle.

• KDI Journal of Economic Policy
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• v.34 no.4
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• pp.27-68
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• 2012

This study outlines measures related to fiscal policies aimed at responding to the financial crisis according to the timing of commencement and then examines impacts of expansionary fiscal policies on macro variables so as to extract policy implications. The size of expansionary fiscal policy to respond to the financial crisis is found to total 59.8 trillion won (6.1% of GDP in 2007), among which a total of 30.5 trillion won was the increased fiscal expenditure made by the 2008 supplementary budget, the 2009 revised budget and the 2009 supplementary budget. In addition, tax reductions are found to be a total of 29.3 trillion won, mainly driven by the tax reforms in 2008 and 2009. Examining dynamic changes in macro variables caused by the temporary increase in fiscal expenditure and the tax reductions reveals that the increase effect of the real GDP growth rate brought by a temporary rise in fiscal expenditure excluding tax reduction effects turned out to be 1.1%p in 2009 and 0.3%p in 2010, compared to the period without the increase in fiscal expenditure. Meanwhile, when taking into account the effect of expansionary fiscal policies including tax reduction effects, the increase effect of real GDP turns out to be much higher. In the case of 2009, the real GDP rose additionally by 1.9%p, in which 1.1%p by the increase in fiscal expenditure and 0.8%p by tax reduction. Based on these results, the expansionary fiscal policy conducted during the financial crisis since the second half of 2008 can be seen to have played a significant role in helping the Korean economy post a higher-than-anticipated recovery pace from the economic slowdown triggered by the crisis.

• East Asian Economic Review
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• v.25 no.4
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• pp.361-401
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• 2021

This paper sets up a two agent small open economy with monopolistically competitive firms and catching up with the Joneses to investigate the labor and capital Laffer curve, taking into account aging population along the line of Auray et al. (2016), Galí and Monacelli (2005), and Trabandt and Uhlig (2011). The paper finds that the higher the market power of firms is, the larger the consumption inequality between asset holders and non-asset holders is in the economy with aging population. It also finds that there is room for government to increase the tax revenue by raising tax rates under the economy with higher markup, as households will work more hours to compensate for their loss of labor income to tax hikes. The expected maximum tax revenue is likely to shrink with progressive taxations, since non-asset holders with additional dividend income work less and consume more. The paper finds that the fiscal multiplier decreases with the degree of progressive redistribution.

• Journal of the Economic Geographical Society of Korea
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• v.20 no.1
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• pp.84-104
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• 2017

In this study, we divided Gyeonggi-do into Northern, Southern, Western, and Eastern Parts and found out fiscal variables which affected regional economic growth of each Part differentially. And we drew the strategy for economic growth of each Part. After we found out the variables which affected regional economic growth using fixed-effect model, we carried out causality test to determine whether a specific fiscal variable caused economic growth. In the Eastern Part, local tax revenues had a significant effect on the economic growth. Total expenditures, current expenditure in the Southern Part and social welfare expenditure, expenditure on industries, current expenditure in the Northern Part had noticeable effects on economic growth respectively. And we calculated multipliers of fiscal variables to compare the magnitudes of effects among these Parts.

• International Area Studies Review
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• v.15 no.1
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• pp.31-58
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• 2011

The purpose of this paper is to analyze the effects of real and monetary disturbances and economic interactions between two large countries, and to examine how wage indexation affects the transmission of real and monetary disturbances and affects the fiscal and monetary policies of a large country. A two large country model is built, and is theoretically analyzed. We conducted an empirical investigation to apply theoretical findings to the Japanese and US economic interactions in response to real and monetary disturbances originating in one or the other country. Empirical evidence on Japan-USA economic interactions shows that Japan is much more affected by the US economic policy than the USA is affected by the Japanese economic policy. The economic impacts of real and monetary disturbances on the Japanese and US economies are smaller when the Japanese and US wage indexing parameters are lower.