Population Aging in Korea: Implications for Fiscal Sustainability

Sungjin Cho ; Jan R. Kim

Sungjin Cho, Professor, Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Korea, Tel: 82-02-880-6371 sungcho@snu.ac.kr
Jan R. Kim, Corresponding Author, Professor, Department of International Economics and Law, Hankuk University of Foreign Studies, 107 Imun-ro, Dongdaemun-gu, Seoul 02450, Korea, Tel: +82-2-2173-3225 kjryoul@hufs.ac.kr

JEL Classification: E62, H60, J11

Abstract

Adverse demographics in Korea impinges on its growth potential and fiscal outlook. Accordingly, this study examines the current demographic situation and recent projections related to the impacts of population aging in Korea, particularly on the looming fiscal imbalance. The focal conclusion is that a two-way effect exists from population aging. First is the anticipated stress placed on government finances due to increasing welfare expenditure for the elderly. Second is sluggish economic growth and thus the inability to collect sufficient government revenues. The prospect of large and growing deficits is therefore immediate and potentially long lasting as governments will be faced with rising spending demands and sluggish tax revenues arising simultaneously from an aging population.

Keywords:

Population aging, Public spending, Tax revenues, Fiscal imbalance

Acknowledgments

Financial support from the Center for Distributive Justice in the Institute of Economic Research of Seoul National University is gratefully acknowledged, and the corresponding author acknowledges research grant for 2019- 2020 from Hankuk University of Foreign Studies.

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