The purpose of this study is to discuss whether the Korean government should solve its fiscal deficit problem, resulting mainly from limited tax revenue, by issuing public bonds.
Public bonds, an important instrument for complementing government revenue, can exert transformative influence throughout the national economy. They are not only a tool for fulfilling the policy goal of raising more revenue, but are also marketable securities that can be incorporated into the financial assets of households and businesses. As policymakers can adjust the business cycle by adjusting the circulation and liquidity of public bonds, they provide an especially appealing policy instrument. Once the government begins to issue these bonds, however, it will be forced to repeat issuing them and to impose a burden on the public in redeeming the principals and interests on government loans. Furthermore, public bonds can significantly affect other concerns of economic policymaking, complicating the policymaking process.
Having pursued exports and economic growth over the last few decades, the Korean economy is now experiencing a period of stagflation. In this situation, it is necessary for the government to start issuing public bonds for tax deduction, albeit passively and on a limited scale with a limited level of liquidity, so as to lift the limit on the public’s purchasing power and to redirect the capital concentrated in non-productive financiers toward investment and production.
As there is fundamentally a limit to by how much the government can increase its tax revenue, it should diversify the sources of its income, and enhance its ability to adjust the business cycle and elasticity on the market by issuing public bonds. As Korea’s trade balance will shift into surplus under the new open economic system, it will need institutional mechanisms that can absorb and control liquidity shocks. Public bonds help policymakers not only with this goal, but also with developing effective financial instruments for the open financial market.
재정적자와 국공채정책(Fiscal deficit and public bond policy)
[서울] : 한국개발연구원
|Journal Title; Vol./Issue||한국개발연구:vol. 4(no. 1)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|