International Tax and Public Finance

, Volume 13, Issue 4, pp 509–531 | Cite as

Fiscal policy in Korea: Before and after the financial crisis



This paper examines the role of fiscal policy in the Korean financial crisis and the subsequent recovery from it. We specifically address three questions: Was Korea’s fiscal policy prior to the crisis conservative, or were there large hidden contingent liabilities not captured in the official budget balance? What were the main characteristics of fiscal policy in stimulating and restructuring the economy under the IMF stabilization program in Korea? How effective were the financial guarantee and public investment programs as part of the counter-cyclical fiscal policy in the recovery process from the crisis? To address these questions, we re-estimate the consolidated budget deficits in Korea by incorporating the quasi-fiscal activities of public funds and public enterprises using their micro balance-sheet data from 1972 to 2003.


Fiscal policy in the Korean financial crisis Consolidated budget deficit Contingent liabilities IMF stabilization program in Korea 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Agenor, P.-R., McDermott, C. J., & Prasad, E. S. (1999). Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts, IMF Working Paper 99/35.Google Scholar
  2. Blejer, Cheasty (1991). The Measurement of Fiscal Deficits: Analytical and Methodological Issues. Journal of Economic Literature, 29, 1644–1678.Google Scholar
  3. Boskin, M. (1982). Federal Government Deficits: Some Myths and Realities. American Economic Review, 72, 296–303.Google Scholar
  4. Buiter (1983). Measurement of the Public Sector Deficit and Its implications for Policy Evaluation and Design. IMF Staff Papers, 30, (June), 306–349.Google Scholar
  5. Burnside, C., Eichenbaum, M., & Rebelo, S. (2001). Prospective Deficits and the Asian Currency Crisis. Journal of Political Economy, 109, 1155–1197.CrossRefGoogle Scholar
  6. Cho, Y. J., & Park, J. (1994). Fiscal Policy in Open Economy: For A Macroeconomic Stabilization Role, In Soon Cho (ed.), Fiscal and Monetary Policy in Open and International Economy (pp. 27–81). Korean: Korea Institute of Public Finance.Google Scholar
  7. Cho, Y. J., & Rhee, C. (1995). A Study on Measurement and Management of Fiscal Policy Stance, Korean: Korea Institute of Public Finance, Seoul.Google Scholar
  8. Chung, U. (1998). IMF Conditionality and Macroeconomic Policy Management. presented at a symposium of KMFA (in Korean).Google Scholar
  9. Corsetti, G., Pesenti, P., & Roubini, N. (1999). Paper tigers? A model of the Asian crisis. European Economic Review, 43, 1211–1236.CrossRefGoogle Scholar
  10. Corsetti, G., & Mackowiak, B. (2005). Fiscal Imbalances and the Dynamics of Currency Crises. European Economic Review, forthcoming.Google Scholar
  11. DeLong, J. B., & Summers, L. H. (1986). The Changing Cyclical Variability of Economic Activity in the United States, NBER working paper no. 1450.Google Scholar
  12. Eisner, R. (1989). Budget Deficits: Rhetoric and reality. Journal of Economic Perspectives, 3, 73–93.Google Scholar
  13. European Investment Fund (2004). EIF Corporate Operational Plan: 2004–2006 January, 2004. www.eif.orgGoogle Scholar
  14. Fatas, A., & Mihov, I. (2001). Government Size and Automatic Stabilizers: International and Intranational Evidence. Journal of International Economics, 55, 3–28.CrossRefGoogle Scholar
  15. Fiorito, R. (1997). Stylized Facts of Government Finance in the G-7 IMF Working Paper 97/142.Google Scholar
  16. Furman, J., & Stiglitz, J. E. (1998). Economic Crises: Evidence and Insights from East Asia. Brookings Papers on Economic Activity, 2, 1–135.CrossRefGoogle Scholar
  17. Gavin, M., & Hausman, R., Perotti, R., & Talvi, E. (1996). Managing Fiscal Policy in Latin America and the Caribbean: Volatility, Procyclicality, and Limited Creditworthiness, Inter-American Development Bank Working Paper no. 326.Google Scholar
  18. Gavin, M., Perotti, R. (1997). Fiscal Policy in Latin America. NBER Macroeconomics Annual, 12, 11–71.Google Scholar
  19. Girard, J., Gruber, H., & Hurst, C. (1995). Increasing Public Investment in Europe: Some Practical Considerations. European Economic Review, 39, 731–738.CrossRefGoogle Scholar
  20. Gramlich, E. M. (1994). Infrastructure Investment: A Review Essay. Journal of Economic Literature, 32, 1176–1196.Google Scholar
  21. IMF (2005). Republic of Korea-Concluding Statement of the Article IV Consultation Mission, International Monetary Fund, Washington D.C.Google Scholar
  22. Kang, K., Kim, G., & Rhee, C. (2004). Developing the Government Bond Market in Korea: History, Challenges, and Implications for Asian Countries, Paper prepared for the presentation at the Asia Economic Panel (AEP) at Columbia University.Google Scholar
  23. KfW, Group (2003). Update: News for Investors—promoting SMEs with new capital market instrument, May 2003. Scholar
  24. Kim, J. Y. (2003). Reexamination of Reimbursement Policy on Public Funds. Korean Journal of Public Economics, 8, 3–25 (in Korean).Google Scholar
  25. Koh, Y.-S. (2005). Reforming Fiscal Management System in Korea, mimeo.Google Scholar
  26. Krugman, P. (1979). A Model of Balance-of-Payments Crises. Journal of Money, Credit, and Banking, 11, 311–325.CrossRefGoogle Scholar
  27. Lane, P. (2003). The Cyclical Behavior of Fiscal Policy: Evidence from the OECD. Journal of Public Economics, 87, 2661–2695.CrossRefGoogle Scholar
  28. Lee, Y., & Sung, T. (2005). Fiscal Policy, Business Cycle, and Economic Stabilization: Evidence from Industrial and Developing Countries, mimeo.Google Scholar
  29. Mishkin, F. S. (1999). Global Financial Instability: Framework, Events, Issues. Journal of Economic Perspectives, 13, 3–20.CrossRefGoogle Scholar
  30. Nam, Y.-S., & Jones, R. (2003). Reforming The Public Expenditure System In Korea, OECD Economics Department Working Papers No.377.Google Scholar
  31. Oak, D.-S. (1997). The Public Sector in Korea: Coverage, Measurement, and Classification. Korean Journal of Public Finance, 12, 33–63 (in Korean).Google Scholar
  32. Radelet, S., & Sachs, J. D. (1998). The East Asian Financial Crisis: Diagnosis, Remedies, Prospects. Brookings Papers on Economic Activity, 1, 1–90.CrossRefGoogle Scholar
  33. Rhee, C. et al. (2004). A Study on the Role of Counter-cyclical Fiscal Policy in Korea, Research Report, Treasury Department, Ministry of Finance and Economy, November 2004 (in Korean).Google Scholar
  34. Shin, D. (2000). Gender and Industry Differences in Employment Cyclicality: Evidence over the Postwar Period. Economic Inquiry, 38, 641–650.CrossRefGoogle Scholar
  35. Solon, G., Barsky, R. & Parker, J. (1994). Measuring the Cyclicality of Real Wages: How Important is Composition Bias. Quarterly Journal of Economics, 45, 1–25.CrossRefGoogle Scholar
  36. Sorensen, B., Wu, L. & Yosha, O. (2001). Output Fluctuations and Fiscal Policy: U.S. State and Local Governments 1978–1994. European Economic Review, 45, 1271–1310.CrossRefGoogle Scholar
  37. Stein, E., Talvi, E., & Grisanti, A. (1998). Institutional Arrangements and Fiscal Performance: The Latin American Experience, Inter-American Development Bank working Paper No. 367.Google Scholar
  38. Talvi, E., & Vegh, C. A. (2000). Tax Base Variability and Procyclical Fiscal Policy. NBER Working Paper No. 7499.Google Scholar
  39. Van den Noord, P. (2000). The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond, Economics Department Working papers No. 230.Google Scholar
  40. Whang, S. H. (2003). The Government Fund System in Korea: Problems and Policy Directions. Korean Journal of Public Finance, 18, 103–135 (in Korean).Google Scholar
  41. World Bank (1993). Macroeconomic Stability and Export Growth. The East Asian Miracle: Economic Growth and Public Policy, Chapter 3, Oxford University Press.Google Scholar

Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  1. 1.Department of EconomicsHanyang UniversitySeoulKorea
  2. 2.Department of EconomicsSeoul National UniversitySeoulKorea
  3. 3.KAIST Graduate School of ManagementSeoulKorea

Personalised recommendations