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OECD Economic Surveys: Korea 2012
OECD Publishing, April 2012, Pages: 125
Despite the recent slowdown in world trade, Korea is projected to sustain growth of around 3½ per cent during 2012. Given future spending pressures, fiscal policy should target a balanced budget (excluding the social security surplus). However, if the global economy were to experience a serious downturn, Korea has scope to respond with fiscal stimulus, given its strong fiscal position, and monetary policy easing. Looking further ahead, Korea faces two key challenges:
- Sustaining economic growth in the face of rapid population ageing.
- Improving social cohesion by reducing inequality and relative poverty.
Sustaining Korea’s growth potential. To mitigate the fall in labour inputs as the working-age population starts declining from 2017, Korea needs to raise labour participation. The low female participation rate should be boosted by encouraging better work-life balance and expanding the availability of high-quality, affordable childcare. Such measures would also increase the low fertility rate.
Another priority is to extend the employment of older workers, who tend to leave firms by age 55, by introducing more flexible wage systems and moving away from mandatory retirement. Rising social spending, related in part to ageing, should be financed primarily by the VAT and environmental taxes, as well as by property-holding taxes, thereby limiting the increase in labour taxes and maintaining work incentives.
OECD's 2012 Economic Survey of Korea examines recent economic developments, policies and prospects. In addition, it includes special chapters covering sustaining convergence to the highest-income countries and promoting social cohesion.
Assessment and recommendations
-Korea’s economic expansion and macroeconomic policies to sustain it
-Policies to promote economic growth
-Policies to promote social cohesion by addressing rising income inequality and relative poverty
-Annex A.1. Economic co-operation with North Korea
-Annex A.2. Progress in structural reforms
Chapter 1. Sustaining Korea’s convergence to the highest-income countries.
-Korea’s long-run growth potential
-Labour market reforms to boost employment and productivity
-Tax policies to promote employment and growth
-Policies to improve educational outcomes
-Increasing the role of the education system in innovation
-Promoting the development of the service sector
Chapter 2. Achieving the “low carbon, green growth” vision in Korea
-Mitigating climate change
-Creating new engines for growth
-Improving the quality of life through green growth
Chapter 3. Promoting social cohesion in Korea
-Rising income inequality and relative poverty and the factors behind it
-Social spending is low but increasing rapidly
-Increasing social spending to promote social cohesion
-Labour market reforms to promote social cohesion by breaking down dualism
-Reforms in the education system to promote social cohesion
-The service sector as a factor in inequality
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