Addressing Korea's Long-Term Fiscal Challenges

Korea is on the verge of an unprecedented demographic shift. In coming decades, rapid aging will transform it from one of the youngest populations in the OECD to among the oldest in record time. In turn, this shift will put tremendous pressure on the pension system and health and long-term care expenditures. This paper evaluates the impact of population aging on the long-term fiscal position in Korea, and assesses potential policy responses using the IMF''s Global Fiscal Model. The paper finds that the key to maintaining a sound long-run fiscal position is to act early and with a range of policy tools, including pension reform, tax base broadening (and, if necessary, rate hikes), improved tax administration and some expenditure reallocation.Aging;Tax administration;Tax reforms;Tax revenues;pension, pension reform, tax rates, pension fund, fiscal policy, health care, pension system, long-term care, fiscal position, fiscal pressures, tax revenue, fiscal model, public debt, expenditure growth, fiscal deficit, labor force, contribution rate, pensions, tax base, fiscal consolidation, tax reform, fiscal sustainability, public finances, contribution rates, public expenditure, fiscal report, public spending, expenditure increases, taxation, fiscal balance, tax rate, fiscal stance, national pension, tax incentives, pension contribution, contribution base, dependency ratio, fiscal adjustments, expenditure restraint, taxable income, pension fund assets, pension expenditure, fiscal risks, payroll taxes, current pension, fiscal deficits, account deficits, replacement rate, fiscal consolidations, fiscal costs, government spending, aggregate demand, government budget, fiscal affairs, aggregate budget, revenue collections, fiscal transparency, budget constraint, pension obligations, expenditure ratios, increases in tax rates, pension contributions, long-term care costs, government revenue, national fiscal management, fiscal affairs department, occupational pension schemes, future obligations, tax increases, tax increase, occupational pensions, payroll tax, retirement, occupational pension, tax credit, fiscal surplus, fiscal management, government expenditure, fiscal expenditures, pensions system, expenditure cuts, accumulated savings, old-age pensions, pension schemes, national pension fund, fiscal consequences, pension fund asset, national pensions, retirement age, fiscal variables, central government expenditure, expenditure adjustment, tax system, pension fund contribution, long-term projections, fiscal projections, asset management, fiscal implications, wage growth, fiscal structure, fiscal objectives, fiscal space, fiscal prudence