Working Paper: NBER ID: w10693
Authors: Alan J. Auerbach; Young Jun Chun; Ilho Yoo
Abstract: This paper uses Generational Accounting to assess the fiscal impacts of Korean reunification. Our findings suggest that early reunification will result in a large increase in the fiscal burden for most current and future generations of South Koreans. The Korean reunification's fiscal impact appears much larger than that of German reunification, due to a wider gap in productivity between the two Koreas and North Korea's much larger share of the unified country's population. The projected large-scale fiscal burden on South Korea is attributable primarily to the rapid increase in social welfare expenditure for North Korean residents, rather than to the direct reconstruction cost of the North Korean economic system after the disintegration of its old economic regime.
Keywords: No keywords provided
JEL Codes: H22; H55; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| early reunification (Y50) | substantial increase in fiscal burden for current and future generations of South Koreans (H60) |
| larger productivity gap between North and South Korea (O49) | increased fiscal burden for South Koreans due to reunification (H69) |
| rising social welfare expenditures for North Korean residents (H53) | increased fiscal burden for South Koreans due to reunification (H69) |
| required adjustment to attain long-term government budget balance (H69) | significant increase in tax burdens for future generations (H60) |
| generational accounts reveal substantial negative net payment for existing North Korean generations (H60) | reunification will transfer resources to these individuals (J68) |