Social spending in Korea: can it foster sustainable and inclusive growth?

Selim Elekdag, Dulani Seneviratne and Edda Zoli write in “Social spending in Korea,” that Korea faces two closely related challenges: sustaining economic growth against the backdrop of a rapidly aging population and ameliorating income inequality. Elekdag, Seneviratne and Zoli argue that a gradual increase in social spending could promote more sustainable and inclusive growth in Korea. In particular, simulation results suggest that social spending which supports labor market reforms can boost longer-term growth. However, despite rapid increases recently – albeit from a low base – there is still a social spending gap relative to Korea’s OECD peers. They find that because of several fiscal challenges in the coming decades, increases in social spending should be incremental, and would be usefully guided by a longer-term fiscal framework.