Various economic changes occurring worldwide, such as the declining potential growth rate, rapid aging of populations, and rise of the private sector as a dominant economic segment, are driving the need for the adoption of new financial management strategies. Government expenditure is expected to increase in the medium to long term, and fiscal sustainability may be compromised, as tax revenue growth slows and welfare spending increases dramatically. To mitigate the impact of this financial instability, it is necessary to prevent the growth of public expenditure and increase the efficiency of government spending. Ensuring the flexible distribution of financial resources under diverse circumstances is also required. In other words, to ensure the efficient use of limited resources, we must channel more resources into highly requested projects while reducing spending on tasks that are no longer in high demand.
In 2004, the government addressed the issue of the efficiency of resource use by introducing the National Fiscal Management Plan (NFMP) , which proposed plans for medium-term fiscal activities and financial resource allocation. This report aims to examine the current status of fiscal allocation in different sectors, discuss how the NFMP can improve the distribution of financial resources, and propose plans with the aim of increasing the effectiveness and efficiency of government expenditure in different industries.
Chapter 1 outlines the key arguments of this report, while Chapter 2 discusses the current status of resource distribution in various sectors and suggests possible improvements. Government expenditure in Korea hovers around the average of other countries, including developing nations. The Korean government spends a significant portion of its tax revenue on projects that aim to stimulate the economy and relatively little on social welfare, which is also around the average of other states. As the economies of Korea and countries around the world remain unstable, priority should be given to investment in basic public services rather than economic development plans. Another crucial means of improving resource distribution is to establish a good performance management system and medium-term fiscal management system. Chapter 3 examines welfare budgets. Establishing a firm basis for future welfare policies requires plans for the balanced development of the welfare system based on a specific set of priorities, as well as qualitative improvement of policy effectiveness and efficiency rather than mere budget increases.
Chapter 4 delves into the education budget. There is a need to increase federal spending on education at various levels, including secondary, preschool, and lifelong education. Increasing the total budget for primary and secondary education should involve prompt actions by the regional governments, keeping in mind that, in terms of the education budget, efficiency should be given more emphasis than scale. The obligation and authority to intervene in education at such levels should be distributed to different constituents, such as local governments, cities, provincial offices of education, and regional school units. Meanwhile, a greater portion of spending on post-secondary education should go toward indirect assistance for students, researchers, and educational teams, while providing a smaller portion as direct assistance for universities. The coordination of post-secondary education investment should also undergo structural reform with a view to improving overall efficiency.
Chapter 5 provides a look into spending that aims to reduce unemployment. Such expenditures should be managed with the overall welfare budget in mind. The fact that the final benefactors of unemployment reduction are private enterprises should be taken into account when assigning priorities in inducing employment in the private sector. Childcare subsidies should also be given more weight in order to increase the number of women in the workforce. Meanwhile, long-term investments are preferable to short-term projects as a means of tackling the structural roots of unemployment and promoting youth employment.
Chapter 6 reviews the budget for agriculture. As in many other OECD countries, direct payments in each area is the most effective form of agrarian welfare service in Korea. There is no significant difference in effectiveness between direct payments, deficiency payments, and price floors, which is a phenomenon not often seen in OECD countries. If direct payments for farmers induce the same effects as providing income support for low-income farms, it would not only improve the distribution of income across neighboring farms but also achieve horizontal equity across low-income families in rural areas. Analyzing, in detail, how much recipient farms should receive and devising plans to increase the amount of financial aid is crucial to the design of an ideal direct payment system.
Chapter 7 discusses the budget for social overhead capital (SOC). An international comparison shows that Korea’s road network coverage is 84 percent that of the international average, while its railroad network coverage stands at 66 percent. It is predicted that it would be beneficial for Korea to reduce its investments in roads and airports, maintain its current level of investment in railroads, and increase its investment in ports.
Chapter 8 looks at the research and development (R&D) budget. The government has made significant investments in national R&D and is likely to continue doing so in the future. It could, however, increase its investment efficiency by establishing an institutional framework for improving research management and operation, finding links and practical applications across research subjects, and creating a system for national innovation to maximize the potential of science and technology.
Chapter 9 provides a look into the budget for regional financial assistance. According to an empirical analysis of the determinants of the regional financing scale, the Korean government’s provision of regional financial aid is overperforming in terms of income, territory, and population. Increasing regional assistance will help satisfy the financial demands that have arisen during the recent period of stable national growth and relocation of governmental functions to regional areas. However, it is crucial that efforts be made to reinforce the government’s commitment to and the efficiency of regional assistance spending.
Chapter 10 conducts an empirical analysis of the stabilizing effects of fiscal policies. Although the results dispute some of the widely accepted Keynesian beliefs, they should be subjected to critical examination. More empirical studies are required in order to prove the validity of fiscal policies.
Efforts to ensure the priorities of budget expenditure across all domains should continue in the future. Each project should be designed with a clear policy objective and well-organized strategy in order to facilitate the prioritization process, and a series of analyses and assessments of each project should be performed regularly. Businesses cannot achieve their goals based on budget increases alone. Therefore, the tasks of improving the policy environment and establishing a firm performance management system should be completed before addressing the issue of assigning budgets.
재정지출의 생산성 제고를 위한 연구(Enhancing the efficiency and equitableness of public expenditure)
|Series Title; No||정책연구시리즈|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KDI; KDI School|