NABO Economic Trends & Issues(Issue No. 42)
Published April, 2016
I. Economic trends
The Korean economy is showing some positive signs. Among these, the slowdown in exports is decelerating; industrial production is rising sharply as a result of releases of new mobile phones; and the CSI and BSI are rallying strongly. The overall economic recovery is, nevertheless, expected to take some time in light of the decline in capital investment and external factors.
II. Characteristics of countries with good youth employment
Youth labor underutilization in Korea is very serious. The unemployment rates across age groups vary markedly, and there is disparity between the labor underutilization indicator and the official unemployment rate. The analysis of characteristics of countries that have good youth employment indicators showed that the German-speaking countries offer extensive vocational education and training; Northern European countries have active labor market policies; and the English-speaking countries have labor market flexibility.
III. Employment subsidies for job seekers
The Korean government has recently sought to introduce employment subsidies for job seekers. Given that there are both a labor shortage in some fields and a scarcity of jobs in others in Korea, subsidies for job seekers seem effective. However, the government needs to find ways to minimize the execution costs of subsidies and to maximize their effectiveness.
Ⅳ. Major points of the 2017 Budget Compilation Guidelines
The Ministry of Strategy and Finance announced the guidelines for the compilation of the 2017 budget. The guidelines primarily address the rigorous restructuring of discretionary spending, the introduction of employment impact assessment, the introduction of an entry and exit system for subsidized projects, and the imposition of greater accountability on local governments for fiscal management of the nation's child care system for children aged 3-5, the 'Nuri Program,' and the fiscal management based on participation and disclosure.
V. 2016 economic policies set by the two sessions
China's annual "two sessions" set the basic directions for the nation's economic policy for this year: maintaining stable growth and fueling growth engine through supply-side structural reforms. They also proposed a five-year growth strategy to achieve "xiaokang (moderately prosperous) society." Since the global financial crisis, the two sessions have continually adjusted downward their economic growth rate targets in response to structural problems inside and outside the country.
Ⅵ. Processes and implications of OECD BEPS Action Plan
The OECD's Action Plan on Base Erosion and Profit Shifting (BEPS) was approved by the G20 in January 2016. In order to maximize the effectiveness of the action plan, the Korean government needs to toughen the tax system for price transferring through which profits are allocated among affiliated companies based on actual contribution, restrict deductions for interest payments to prevent excessive deduction of expenses, and introduce a mandatory advance reporting system for suspected tax evasion.
Ⅶ. Trends in major countries' fiscal rules and their implications
With respect to fiscal rules, Sweden and Germany have the best practices. The UK and Japan have failed to comply with their own fiscal rules. The effects of fiscal rules in the US have been unsatisfactory. In light of the recent fiscal conditions, Korea needs to legislate permanent fiscal rules and steadfastly adhere to them.
The Korean economy is showing some positive signs. Among these, the slowdown in exports is decelerating; industrial production is rising sharply as a result of releases of new mobile phones; and the CSI and BSI are rallying strongly. The overall economic recovery is, nevertheless, expected to take some time in light of the decline in capital investment and external factors.
II. Characteristics of countries with good youth employment
Youth labor underutilization in Korea is very serious. The unemployment rates across age groups vary markedly, and there is disparity between the labor underutilization indicator and the official unemployment rate. The analysis of characteristics of countries that have good youth employment indicators showed that the German-speaking countries offer extensive vocational education and training; Northern European countries have active labor market policies; and the English-speaking countries have labor market flexibility.
III. Employment subsidies for job seekers
The Korean government has recently sought to introduce employment subsidies for job seekers. Given that there are both a labor shortage in some fields and a scarcity of jobs in others in Korea, subsidies for job seekers seem effective. However, the government needs to find ways to minimize the execution costs of subsidies and to maximize their effectiveness.
Ⅳ. Major points of the 2017 Budget Compilation Guidelines
The Ministry of Strategy and Finance announced the guidelines for the compilation of the 2017 budget. The guidelines primarily address the rigorous restructuring of discretionary spending, the introduction of employment impact assessment, the introduction of an entry and exit system for subsidized projects, and the imposition of greater accountability on local governments for fiscal management of the nation's child care system for children aged 3-5, the 'Nuri Program,' and the fiscal management based on participation and disclosure.
V. 2016 economic policies set by the two sessions
China's annual "two sessions" set the basic directions for the nation's economic policy for this year: maintaining stable growth and fueling growth engine through supply-side structural reforms. They also proposed a five-year growth strategy to achieve "xiaokang (moderately prosperous) society." Since the global financial crisis, the two sessions have continually adjusted downward their economic growth rate targets in response to structural problems inside and outside the country.
Ⅵ. Processes and implications of OECD BEPS Action Plan
The OECD's Action Plan on Base Erosion and Profit Shifting (BEPS) was approved by the G20 in January 2016. In order to maximize the effectiveness of the action plan, the Korean government needs to toughen the tax system for price transferring through which profits are allocated among affiliated companies based on actual contribution, restrict deductions for interest payments to prevent excessive deduction of expenses, and introduce a mandatory advance reporting system for suspected tax evasion.
Ⅶ. Trends in major countries' fiscal rules and their implications
With respect to fiscal rules, Sweden and Germany have the best practices. The UK and Japan have failed to comply with their own fiscal rules. The effects of fiscal rules in the US have been unsatisfactory. In light of the recent fiscal conditions, Korea needs to legislate permanent fiscal rules and steadfastly adhere to them.