In the presence of economic crisis, many countries all over the world have adopted fiscal stimulus plans. In particular, on average, G-20 countries have started fiscal stimulus measures amounting to 0.5% of GDP in 2008, 1.5% of GDP in 2009 and plan to execute fiscal measures of 1% of GDP in 2010.
Initially, each country adopted fiscal principles known as 3T: timely, targeted and temporary. However, the types of fiscal measures are changed to achieve practical goal. Here, we divide the types of fiscal stimulus measures into temporary, permanent and self-reversing. Fiscal measures should be temporary and permanent. Most of the stimulus measures on the spending side are designed to be temporary, while most revenue measures are permanent. Moreover, stimulus measures must be self-reversing. For instance, the VAT cut will be offset by other revenue-increasing measures.
We also classify fiscal stimulus measures based on spending and revenue sides. Most of the fiscal stimulus focused on the spending measures with emphasis on spending increase for infrastructures, while revenue measures have targeted primarily towards households through cuts in personal income and indirect taxes. We found that the Korean government has well chosen the appropriate fiscal measures to mitigate the ongoing economic downturn.