Volume 43, Number 168,
January-March 2012
Crisis and Economy Recovery: The Role of Fiscal Policy
Moritz Cruz and Javier Lapa

Korea faced the economic crisis, as we have highlighted, with large public spending, which is reflected in significant fiscal deficits. This spending affected both demand and supply in the economy. For example, fiscal policy was directed towards supporting development in the industrial and technological sector, which encouraged small and medium companies through a series of fiscal incentives.13 The government also completed public work programs and provided incentives for setting up new companies (through support and privileged subsidies) with the intention of generating employment, and so countering the increasing poverty in the lowest-learning sectors. Another fiscal measure aimed at stimulating demand was the implementation of income support for the poorest, such as training and maintenance programs for reemployment.2 These measures explain the considerable increase in public spending in 1998 and 1999. In effect, public spending rose from 19.8% of gdp in 1997 to 22% of gdp in 1999. Furthermore, there is a considerable fiscal debt in this year, 2.3% of gdp, although relatively less than in 1998 when the level reached 3.7% of gdp (see Table 4).

Examining the data in Table 4, it would be spurious to conclude that having overcome the crisis in 2000 Korea changes her position radically on the performance of demand and economic growth, given that the fiscal balance is in equilibrium or in surplus. Nonetheless, if the public spending trend from this year onwards is examined carefully, it can be seen that it is well above pre-crisis levels, particularly in 2006. In this respect it is possible to argue that the Korean government understood the significance of public spending within the dynamics of the economy, maintaining the economic policy autonomy it recovered during the crisis. It is also important to note that the increase in public spending in the absence of new taxes has much to do with the improving economy.

13 For example, tax refunds, preferential public services tariffs, and assessment for improved operations.

14 10.1 trillion won were designated purely for income and employment support policies in 1998, 15.8 in 1999 and 6.7 in 2000, i.e. an average of 1.2% of gdp was spent.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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The online journal Problemas del Desarrollo. Revista Latinoamericana de Economía corresponds to the printed edition of the same title with ISSN 0301-7036