Supplementary budgeting during the COVID-19 pandemic in South Korea

ABSTRACT

This study explores the South Korean government’s fiscal response to the COVID-19 pandemic in relation to supplementary budgeting. In particular, we empirically examine the formulation of supplementary budgets and discuss its policy implications. We focus on South Korea, which effectively mitigated pandemic concerns in the early stage through expansionary fiscal policies. Our findings indicate that, first, budgetary projects that undergo the supplementary budgeting process in previous years tend to be organized again as the supplementary budget in response to the COVID-19 crisis. Second, information regarding the unused budget in the past, which is a widely adopted indicator of budget inefficiency, does not influence the supplementary budgeting process to improve budget efficiency. These results suggest that, in the face of time and information constraints, budgetary agencies obtain relevant information from past experiences to formulate the supplementary budget during the COVID-19 pandemic; however, the positive effects are limited because agencies do not adequately utilize efficiency-related information.

KEYWORDS:

• Supplementary budget
• budget formulation
• COVID-19
• South Korea

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. For example, Olivier Blanchard, chief economist at the IMF and senior fellow at the Peterson Institute for International Economics, insists on responding to COVID-19 through aggressive fiscal policy: https://www.piie.com/blogs/realtime-economic-issues-watch/whatever-it-takes-getting-specifics-fiscal-policy-fight-covid

2. Please see the following news articles for background information available to the public:‘Coronavirus in South Korea: How “trace, test and treat” may be saving lives,’ British Broadcasting Corporation (BBC), 12 March 2020; ‘How South Korea flattened the curve,’ The New York Times, 23 March 2020; ‘South Korea is winning the fight against COVID-19. The U.S. is failing,’ The Washington Post, 10 April 2020; ‘Test, trace, contain: How South Korea flattened its coronavirus curve,’ The Guardian, 23 April 2020.

3. The question whether expansionary fiscal policies are necessary during the COVID-19 situation fueled an important debate due to the alarmingly increase in government debt and fiscal deficits this caused and the related destabilization of fiscal soundness. The controversy regarding whether fiscal rules should be introduced was also discussed on the policy front. We agree that these discussions form a significant strand of research examining the relationship between the COVID-19 pandemic and fiscal policies. This study approaches these events by investigating how expansionary fiscal policies were executed where they had already been promulgated.

4. The last time that four supplementary budgets were formulated in a single year was in 1961, in the context of a military coup that took place in the wake of the Korean War. For more information, see the following article (in Korean): https://www.chosun.com/site/data/html_dir/2020/08/23/2020082300670.html

5. General and Local Administration, Public Order and Safety, National Unification and Foreign Affairs, National Defense, Education, Culture and Tourism, Environmental Protection, Social Welfare, Health, Agriculture, Forestry and Fisheries, Industry/Small and Medium Enterprise/Energy, Transportation and Logistics, Communication, National Land and Regional Development, Science and Technology, and Reserve Funds.

6. For instance, it took only about 3 weeks for the 2013 supplementary budget to be formulated from the proposal to the resolution.

7. One USD is equivalent to approximately 1,000 KRW.

8. We appreciate the reviewer’s comment that unused budgetary amounts may be a consequence of government savings. We focus on the current budget system – the UILI rule, under which unspent budgeted amounts are discarded. The Board of Audit and Inspection negatively evaluates budgets with excessive unused amounts, which makes it less beneficial to have unused amounts at the end of the fiscal year.

9. Please refer to the following website for detailed information: http://www.openfiscaldata.go.kr/

10. According to our dataset, the number of IDs is stable across years, at about 2,000, which reaffirms that the budgeting process is based on these IDs.

11. Throughout the study, we use 1,000 KRW as the basic budget unit.

12. For example, the minister of the Ministry of Economy and Finance is the minister-level cabinet member, and the commissioner of Statistics Korea is the vice minister-level cabinet member.

13. To be specific, we identify a total of 16 divisions (bunya), 69 groups (bumun), and 464 classes (program) in the dataset. Each of them is controlled as a dummy variable.

Additional information

Notes on contributors

Hoyong Jung

Hoyong Jung is an assistant professor in the department of economics, Kookmin University, South Korea. He worked as a deputy director in the Ministry of Economy and Finance at South Korea during 2010-2019. He holds Ph.D. in economics at the University of Wisconsin-Madison.