KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Decomposing Health Care Expenditure Growth in Korea

This paper analyzes healthcare expenditure growth in Korea using National Health Insurance Claims data from 2009 to 2019. Healthcare expenditure growth is decomposed into three components at the disease level: service utilization growth, service price growth and demographic transition.

The decomposition shows that growth in prices is the primary driver of healthcare expenditure growth since 2013 at the aggregate level. The main driver has shifted from service utilization growth towards service prices growth. The contribution of demographic shift remains stable over the period, however the contribution pattern varies across age group, type of services and suppliers.

Decomposition of healthcare expenditure of elderly shows different pattern compared to aggregate level decomposition. Demographic shift is the main driver of healthcare expenditure growth among elderly. The contribution of service utilization decreased and suggests possible healthy aging.

Summary

Policy Study KOR Tax Revenue Structures in an Aging World: International Comparisons and Policy Insights

This study aims to foster informed public discourse on inevitable tax increases in response to the substantial fiscal pressures of population aging. Chapter 2 examines how major advanced economies that experienced population aging earlier than South Korea mobilized financial resources during this demographic shift. Chapter 3 empirically analyzes tax reform strategies that reduce revenue volatility, support economic growth, and promote equitable taxation. The findings support strengthening value-added tax (VAT) and personal income tax―a widely endorsed approach mong tax experts and implemented in major advanced economies. However, Korea has limited experience with universal tax increases and faces considerable public resistance to such measures. To assess whether these concerns are based on empirical evidence, Chapter 4 examines 150 cases of VAT or personal income tax increases implemented in major advanced economies. The findings reveal that only 20% of these tax increase cases resulted in a change in government. Finally, Chapter 5 argues that concerns over political repercussions should not preclude universal tax increases as a key policy option for enhancing the sustainability of public services. The study also emphasizes two prerequisites for the government to address before initiating public discourse on tax increases: earning public trust in the efficiency and effectiveness of fiscal expenditures through structural reforms and improving the general public’s fiscal literacy.

Summary

Policy Study KOR A Study on Impact of Korea’s Policy Instruments for Battery Electric Vehicles (BEVs) and Fuel Cell Electric Vehicles (FCEVs)

Over the past five years, there has been a swift increase in the registration of clean vehicles, including Battery Electric Vehicles (BEVs) and hydrogen-powered Fuel Cell Electric Vehicles (FCEVs). The total number of registered BEVs and FCEVs reached 1.6% of all vehicles by the end of 2022, driven by various government support policies. In pursuit of its net zero goal, the South Korean government aims to increase the share of BEVs and FCEVs to at least 85% by 2050. The 2023 budget for clean vehicles (3.3 trillion won) accounts for 29.0% of the Ministry of Environment's total budget. Against this backdrop, this study empirically examines the effects of recent deployment policies based on data from newly registered BEVs and FCEVs. Specifically, by compiling datasets of newly registered passenger cars, government subsidy levels, and cumulative charging infrastructure by region from 2019 to 2022, this study conducts regression analyses to determine the impact of regional differences in these variables on the changes in the number of newly registered BEVs and FCEVs, respectively.

The analysis reveals that the price elasticity of newly registered BEVs and FCEVs based on subsidy changes was -1.59 and -2.90, respectively, while the charging infrastructure elasticity was 1.24 and 0.93, respectively. Additionally, the high degree of fiscal independence among local governments and high fuel prices for internal combustion engine vehicles contributed to the increase in new registrations. In the case of EVs, the price elasticity for foreign cars was higher than for domestic cars. Moreover, when analyzing EVs restricted to private use, the price elasticity decreased, and the impact of deploying chargers diminished. Based on the obtained estimates, this study further examines alternative scenarios to evaluate the effectiveness of the EV subsidy policy. It turns out that approximately 27.4% of new registrations over the past four years were attributed to subsidy payments, and that charger installation is more cost-efficient than paying subsidy in terms of government expenditure. Furthermore, a cost-benefit analysis of the subsidy policy indicates that in most scenarios, costs outweigh benefits. However, if carbon emissions from the power sector are zero and the social costs of carbon emissions from internal combustion engine vehicles are high, the benefit-cost ratio (benefit amount ÷ cost amount) increases to 0.97.

Based on the analysis, the main policy implications are as follows. First, as future EV sales must target private use, which is less responsive to price changes, the effectiveness of purchase price support will decrease. Therefore, enhancing charging infrastructure to stimulate demand will become more crucial. From a qualitative standpoint, an effective deployment strategy involves ensuring the proper maintenance, repair, and replacement of previously installed chargers to maintain full functionality and enhance consumer convenience within the charging system. Additionally, enhancing charging infrastructure at mobile hubs such as highway rest stops in line with technological advancements like battery performance improvements would be effective in increasing deployment. For hydrogen cars, the higher price elasticity compared to electric vehicles suggests a greater effect of subsidies on their deployment. However, due to the uncertainty of the eco-friendliness of the hydrogen production process, a promotion strategy considering technological changes is required. Lastly, as the number of clean vehicles continues to grow, reforming the tax system becomes inevitable. This includes an overall reform of the tax structure applied to fossil fuels, alongside comprehensive investigations to secure a competitive advantage for clean vehicles during operation.

Summary

KDI FOCUS Impact of Policy Incentives on Adoption of Electric Vehicles in South Korea

South Korea’s strategies for deploying battery electric vehicles (BEVs) primarily include providing purchase subsidies and expanding charging infrastructure. An empirical analysis of new vehicle registrations from 2019 to 2022 shows that investing in charging facilities is more costeffective than offering purchase incentives for increasing BEV adoption. To achieve a higher share of BEVs, a stronger policy focus on improving the charging network is necessary to stimulate overall demand for BEVs.

- Achieving the target of ‘deploying 4.5 million BEVs and FCEVs by 2030s’ requires a substantial increase in the number of these vehicles, necessitating a comprehensive review of effective policy strategies.

- While Korea has witnessed a consistent increase in the cumulative number of BEVs (and PHEVs), it still lags behind the global average.

- Recent data indicates a deceleration in the growth rate of new BEV registrations.

- Korea’s government policy support to promote the adoption of BEVs and FCEVs primarily comprises purchase subsidies and charging infrastructure installation. Fiscal spending for these measures has increased dramatically, with the related budget accounting for 25.3% of the Ministry of Environment’s total budget in 2023.

- Analysis reveals that a 10% increase in the cumulative number of chargers correlates with a 12.4% rise in new registrations, while a 10% price reduction due to subsidies results in a 15.8% increase in new registrations.

- Also, private vehicles exhibit lower elasticity in response to changes in the number of chargers and in price compared to their government and business counterparts.

- Subsidy-induced adoption accounted for about 27.4% of the 240,000 BEVs eligible for purchase subsidies in 2019~22.

- Analysis suggests that promoting BEV adoption through the expansion of charging infrastructure would be more cost-effective than offering purchase subsidies. Additionally, the direct social benefits derived from BEV subsidies generally fail to outweigh their costs, indicating current subsidy levels may be excessive.

- Future BEV deployment policies should prioritize reinforcing charging infrastructure over providing purchase subsidies. In particular, deploying enough fastchargers at key travel hubs is essential to improve convenience and facilitate long-distance travel.

Summary

Research Monograph KOR Analysis of Public Procurement Contracts: Effectiveness of the APAS

The Korean government implemented the Average Price Auction with Screening (APAS) in 2016 for construction contracts of a certain size or larger that are ordered by the public sector, including central government offices and public enterprises. The APAS takes into account both price and non-price scores which are tallied using the Average Price Auction (APA), and not the more common First Price Auction (FPA) method. The FPA awards the highest score to the lowest bidder while the APA calculates the average price, and awards the highest score to the closet bid. As such, the APA regulates the bidding competition, and forces bidders to place similar offers. Before being replaced by the APA in 2016, the FPA received harsh backlash for inciting aggressive competition, and awarding contracts to incapable bidders which resulted in frequent contract changes and cost overruns.

This study empirically analyzes whether the APAS produces meaningful effects that achieve the intended goals in regard to price and non-price scores. The outline of the major findings are as follows. Firstly, the bid-hit ratio increased by a statistically significant 6% after the adoption of the APAS. This is in line with expectations that the transition from the FPA to APA keeps competitions in check and raises the bidding ratio. Secondly, no improvements were observed in the resolution of fallouts such as contract changes and cost overruns. In sum, these results indicate that the APAS is not effective, and could place a bigger fiscal burden on the government authorities awarding the contracts.

Summary

Policy Study KOR Evaluating the Effectiveness of Social Policies through a Policy Experiment System

This study proposes that a policy experiment system is introduced to examine the validity of new social polices. Such polices cannot be assessed with the existing Preliminary Feasibility Test and require a small-scale pilot program with an experimental design (typically, randomized controlled trial or RCT) to first be implemented. When the program ends, it is evaluated by the fiscal authorities to decide on whether to scale up the policy.

The policy experiment system presented in this study is applicable to social policies with the following characteristics: i) concrete objective; ii) measurable main outcome and realized in a short period of time and; iii) accessible control group. It is particularly useful when a policy is surrounded by skepticism and/or when budgetary needs are expected to increase in the near future. Accordingly, it can be concluded that the active labor market program is most suitable for the pilot application of the policy experiment system.

Chapter 1 briefly introduces the concept of the policy experiment system while Chapter 2 presents the implementation of the experiment through existing and new labor market programs. Prime examples are the Employment Success Package which was initiated in 2010 and the Youth Job Search Subsidy which is slated for 2019. Chapters 3 and 4 provide practical guides for researchers conducting the policy experiment and summarize the issues of conducting the experiment in the health and welfare field. Finally, Chapter 5 discusses the potential limitations of the system and draws on a conclusion.

Summary

Research Monograph KOR Improving the Performance Management System of Budgetary Programs: Focusing on In-depth Evaluation

In the decade since its introduction, the performance management system for budgetary programs has effectively bridged budgetary outcomes with financial allocation, enhancing the efficiency of public resources. However, changing conditions have demanded constant improvements. In particular, the critical mindset that was present at the intial stages of the system has waned and an increasing number of information utilization cases for performance assessments, etc. have become mere formalities and do little but monitor.

The majority of OECD members who have implemented the performance- based budgeting system face common obstacles. However, these challenges are important elements in improving the system, for example: enhancing the accuracy of performance assessments; operating effective systems that incorporate feedback into the budgeting process; gaining the attention of major policymakers and; upgrading the quality of information on program performance. Above all, producing and utilizing information on performance is essential in managing budgets. In addition to concentrating on outcome and performance rather than the input in the allocation of resources, the performance-based budgeting system is also effective in enhancing the understanding of the purpose and priorities of government decisions and actions. The system is effective not only externally but also within government e.g. policy enforcement agencies and decision- makers. Specifically, the disclosure of information to the public and National Assembly will enhance the transparency of budget programs. And more importantly, decision-makers will be better able to understand how and how much programs contribute to policy goals. For instance, at the early stages of program planning, the information could be used to identify which programs work via which channel. And, it should be noted that the information is a primary component in improving the efficiency of resource allocation.

The above issues are typical in performance-based budgeting systems as the conflict between accuracy and timeliness is a common phenomenon in producing and using information. As such, there are no quick, radical solutions. Rather, gradual progress could be made through a multifaceted perspective and more suitable methods. Accordingly, this study intends to review the production and use of information on performance assessments in key areas and present recommendations for meaningful improvements.

Overall, the government must uphold its obligation and guarantee value for money to all budget programs. And, although countless laws, systems and procedures have been established during the budgetary process, identifying and producing information that is essential to government endeavors will be the most fundamental and important aspects in implementing future mechanisms and practices. Indeed, producing and providing accurate information on the outcomes of public activities will not only meet the demands of the people but the information can be used as an effective tool by the government to assess its own performance.

Summary

Policy Study KOR Fiscal Implications of Immigration Policy in Korea

This study intends to examine the size and characteristics of immigrants living in Korea and analyze the difference in their fiscal contribution according to their characteristics. Based on this analysis using a dynamic equilibrium model, it is aimed to critically examine the direction of Korea’s immigration policy as a response to fiscal problems caused by population aging.

First of all, this study surveys the trends in size and characteristics of immigrants staying in Korea. According to various statistics, it is found that the number of immigrants is increasing relatively rapidly and this increasing trend is explained mainly by the number of immigrants with long-term visas admitting for one year or more. Immigrants exhibit higher labor force participation rate and employment rate than domestic working-age population, but tend to stay in Korea for shorter periods than immigrants of other OECD countries. Female immigrants with marriage visas have higher fertility rates than domestic women.

Next, based on these empirical facts, a dynamic equilibrium model is designed to estimate the net fiscal contribution of immigrants in Korea. Using this model, it is computed how net present value(NPV) of future fiscal contribution differs by visa types, age, and other characteristics of immigrants. According to the model analysis, it is found that NPV of young and productive immigrants can be positive. However, the sum of the NPV of all immigrants in Korea is negative, implying that an immigration policy reform, which only increases the inflow size while maintaining the current foreign population structure, can worsen Korea’s fiscal problems.

This analysis suggests that immigration policy reform might exacerbate Korea’s fiscal soundness if it simply targets to maintain the numerical balance of demographic structure. A selective immigration policy, considering qualitative factors such as immigrants’ productivity, age, and participation in economic activities, might be more desirable in order to minimize potential fiscal burdens.

Summary

Research Monograph KOR Reinventing the Government to Foster Innovation Ecosystem

Innovation ecosystem is the driver of economic development in the age of the Fourth Industrial Revolution, and government reform for the purpose of establishing the innovation ecosystem is a very important and urgent task of the nation comparable to reigniting the engine of growth. As a concept encompassing both R&D and innovation, the innovation ecosystem represents a system in which researchers, entrepreneurs, investors, and public officials continuously compete and cooperate to constantly generate new products, platform, and industries based on high-risk and high-return R&D. Korea must break away from the fast-follower model of the past as soon as possible, which relies on government regulations, interventions, and controls, and must reform roles, organizations, and functions of the government so that it can focus on providing indirect support for establishing the first-mover innovation ecosystem.

This report is consisted of eight chapters from these perspectives. Chapter one presents overall research purpose and background of this report. Here, suggestions are made about transforming the current government into one that is strategic, innovative, and cooperative while also making emphasis on the urgency of establishing the innovation ecosystem and appropriateness of the government reform. This chapter is co-authored by professor Ju-Ho Lee and professor Changyong Choi at KDI School of Public Policy and Management who were also project manager of this research. Chapter two, which investigates integrative restructuring of government organizations, is co-authored by professor Changyong Choi and professor Sangook Park at Soongsil University. Chapter three about strategic and planning function of the central government and strengthening independence and competency of intermediate organizations is authored by professor Heungsuk Choi at Korea University. As for chapter four that handles the topic of reforming governance structure of government-funded research institutes, it is written by professor Jin Park at KDI School of Public Policy and Management. Chapter five presents empirical results regarding geographical distribution of innovation and is co-authored by professor Ju-Ho Lee, Ho Young Oh who is a senior research fellow at Korea Research Institute for Vocational Education and Training, and Sang Hoon Jee who is a researcher at KDI School of Public Policy and Management. Chapter six on reorganizations of support and evaluation systems for R&Ds of government- funded research institutes and universities is written by professor Yeon Seob Ha at Yonsei University. Chapter seven about restructuring national support system for industrial innovations is authored by professor Jin Young Kim at Konkuk University. Finally, chapter eight on the topic of constructing indirect support system for establishing innovation ecosystem is co-authored by professor Seongwuk Moon and professor Joonmo Ahn at Sogang University

Summary

Research Monograph KOR Enhancing Fiscal Sustainability through Strengthening Fiscal Accountability

Korea is experiencing substantial changes in its fiscal environment due to population aging and low growth. Maintaining fiscal sustainability in spite of unfavorable changes requires various institutional adjustments. Main pillar of this study in seeking for solution is fiscal accountability.

The concept of accountability, in short, is the obligation of public officials to inform about and to explain what they doing, This could be an useful tool for checking rationality in fiscal decision, since being able to explain what has been done could be an useful barometer for the fact that the best possible decision has been made. For that reason, this study examines whether accountability is being observed or realized, contributing to rational decisions being made in the major fiscal areas.

SITEMAP

HOT ISSUE

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Public Finance

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary