Long-term Fiscal Outlook and Assessing the Fiscal Sustainability in Korea

In this paper, based on 2014-2060 long-term fiscal outlook, the result from the National Assembly Budget Office according to the demographic changes, I found that the present fiscal policy and system could be sustainable until... [ view full abstract ]

In this paper, based on 2014-2060 long-term fiscal outlook, the result from the National Assembly Budget Office according to the demographic changes, I found that the present fiscal policy and system could be sustainable until 2033 using Bohn’s sustainability test method.
In order to maintain fiscal sustainability (government debt ratio to 60% of GDP) until 2060, there must be required 2.62%p of GDP increasing revenue or decreasing expenditure according to the Sustainability gap indicators (S1) used in the EU. Also I found that S2 is 4.95%p.
I suppose an alternative which sustainable debt ratio in 2033 to 65.2% maintains until 2060. The calculation results of the required primary fiscal balance improvement are from 2.69%p of GDP in 2034 to 5.14%p in 2060. This will be a huge adjustment to be called unrealistic that should serve as an undue burden on the national economy.
Therefore, if I could improve the fiscal balance from now, I have to improve the primary fiscal balance of 2.5%p annually. Instead of waiting until the point of losing the sustainability, there would face less fiscal burden to restore the fiscal soundness reforming fiscal system and policy from now.