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1. The Impact of Immovable Property Tax on the Macro Economy

Author:
Young Sik Jeong, Eunjung Kang, Jinhee Lee, Kyunghun Kim, and Jeehye Kim
Publication Date:
01-2022
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, wealth (asset) inequality is getting worse than income inequality. And Korea is no exception. This deepening of inequality is more worrisome in that it leads to inequality of opportunity while suppressing movement between classes, which in turn deepens inequality, creating a vicious cycle of inequality. This is a bigger problem than the inequality itself. The international communities are calling for stronger property taxes, including recurrent taxes on immovable property, as part of mitigating inequality and promoting inclusive growth. In Korea, there is heated discussion on property taxes, such as recurrent taxes on immovable property including the comprehensive real estate tax. Therefore, this study aims to investigate policy directions in international organizations and major countries on immovable property tax and examine the effect of property tax on the macro economy. This study examine international comparisons of immovable property tax burdens using OECD data. Next, this study analyzes the effect of immovable property tax on housing prices, inequality, and economic growth. Finally, we suggest policy implications to Korea through this. Based on our results, we present policy implications for Korea.
Topic:
Inequality, Tax Systems, Macroeconomics, and Wealth
Political Geography:
Asia and South Korea

2. Global Financial Imbalance: Firm-level Evidence from Korea

Author:
Tae Soo Kang, Kyunghun Kim, and Yuri Kim
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.
Topic:
Financial Crisis, Business, and Business Management
Political Geography:
Asia and South Korea

3. The Effect of Export Insurance and Guarantees on Export Performance: An Empirical Analysis for Korea

Author:
Kyunghun Kim and Hyelin Choi
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
There is a series of empirical papers (Kim and Lee 2004; Egger and Url, 2006; Moser, Nestmann, and Wedow, 2008; Baltensperger and Herger, 2009; Auboin and Engemann, 2014; Van der Veer. 2015) which show that trade finance is positively associated with export. Despite its positive impact on export, trade finance has been a contentious issue in international organizations such as the WTO and OECD in terms of implementing related policy measures. This is based on the argument that trade finance hurts fair international trade because it ultimately plays a role just like a subsidy. Regarding this contentious issue, in this paper we examine whether there is evidence supporting that trade finance is associated with an increase in export. We also investigate the channel through which the effect of the trade finance on export is working. To this end, we focus on a specific part of trade finance: short-term export insurance and export credit guarantee. This is because noble and ample data on these types of trade insurance are available. This confidential data is provided by the Korea Insurance Trade Corporation (henceforth K-SURE) exclusively. We conduct a panel regression using Korean sector-level export data covering from 2010Q1 to 2017Q4. This dataset enables us to control for destination country-, sector-, and time-fixed effects. Our empirical results show that the short-term export insurance and export credit guarantee have a positive impact on exports, and the main channel behind this is related to mitigating financial constraints of exporting firms. The trade finance effectively eliminates the risk of importers' payment, which helps export firms reduce the financial frictions. This ultimately leads to an increase in export. Since the main mechanism in which the trade insurance affects export is related to alleviating financial frictions, it becomes more definite that the way how trade insurance contributes to an increase in export is somewhat different from that of a subsidy. When we consider the fact that financial friction is an important factor for restraining international trade, which can partly explain the great collapse in international trade during the global financial crisis, the trade insurance policies would rather be a useful policy measure which can dampen negative impact on export during recession.
Topic:
Finance, Economic Policy, Exports, and Trade Policy
Political Geography:
Asia and South Korea

4. Redefining Liquidity for Monetary Policy

Author:
Kyunghun Kim, Il Houng Lee, and Won Shim
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
This paper proposes a monetary aggregate “Liquidity” that could serve as a useful indicator for gauging the appropriateness of monetary policy. If liquidity rises above a certain threshold, it is signaling that monetary policy is losing traction due to structural and other impediments even when the inflation gap remains open. This indicator supplements the financial cycle approach but adds value by providing a benchmark that is derived from the national account, and not based on its own trend. Over the last two decades, each time this measure rose above the threshold range, it was followed by a decline in GDP growth. The latter was greater when accompanied by a high physical asset value to GDP, e.g., an elevated property market.
Topic:
Monetary Policy, GDP, Economic Growth, Property, and Liquidity
Political Geography:
Asia, Korea, and Global Focus