A Bank of Korea study saying that if 1 million won in consumption coupons is paid out, small business and self-employed sales increase by 309,000 won is stirring controversy. That is because it sharply differs from an analysis by the Korea Institute of Public Finance, commissioned by the government, which found a 433,000 won increase. Both concluded consumption and sales rose, but the policy's efficiency was measured as low.
The study shows that economic effects can vary widely depending on who analyzes it, by what standards, and how. The 2020 emergency disaster relief funds, the beginning of the policy of distributing cash to the public, drew the same point. The Korea Development Institute (KDI) said sales rose 26.2%–36.1%, but the Korea Labor Institute (KLI) put the consumption-boosting effect at 72.1%. The National Assembly Budget Office said the value added generated in production and employment exceeded the budget投入. That is why similar policies trigger unending debate each time.
◇ "Only direct sales" vs. "including indirect effects"
According to the Bank of Korea's assessment of the economic impact of the consumption coupons on the 12th, 30.9% of the fiscal funds injected into the coupons last year translated into additional sales. The Bank of Korea drew this conclusion based on data from six credit card companies (KB, BC, Shinhan, Samsung, Hyundai, NongHyup).
The Korea Institute of Public Finance also used data from six credit card companies (KB, BC, Shinhan, Samsung, Hyundai, Hana). But the result came to 43.3%. The institute said it "should be understood as a performance close to the upper bound observed under specific design conditions."
The difference is seen as stemming from different standards and methods of analysis. The Bank of Korea tallied only the increase in sales attributable to the coupons, while the Korea Institute of Public Finance summed all indirect effects as well.
The Bank of Korea took as those surveyed the enterprises where the coupons could be used. It compared expected sales without the coupons with actual sales. The Korea Institute of Public Finance examined how much total small business sales in a given area increased. Stores where the coupons could not be used were included. It effectively captured the value added created as money circulated in the area after the coupons were used.
For example, if 100,000 won in coupons is used at a restaurant, the Bank of Korea counts sales as up 100,000 won. The Korea Institute of Public Finance also captures the restaurant owner using personal money to buy family gifts out of happiness from the earnings.
A Bank of Korea official said, "Because the purpose of the coupons is to have them used at authorized places, we sought to examine the direct effects." Jang Woo-hyeon, head of the National Accounts and Fiscal Statistics Center who joined the Korea Institute of Public Finance study, said, "Because we need to see how the commercial district revived when the coupons were used, our study better fits the policy objective."
◇ The takeaway is the same: "differential payments"
The two studies reached different results, but pointed to the same implication. Rather than paying the same amount to all citizens, "differential payments" that provide more support to vulnerable groups are efficient. Support should be focused on groups that consume more than they save when they receive coupons.
The Bank of Korea said, "If the policy timing and differential support methods are precisely designed, the economic effect could likely be further maximized." The Korea Institute of Public Finance said, "The social discussion on modes of fiscal support needs to shift from the dichotomy of 'whether to pay' to 'the degree of differentiation,'" adding, "Selective payments are an extreme form among the many differential payment methods."
The Korea SMEs & Startups Institute (KOSI), which studied the consumption-boosting effect of the consumption coupons policy, also said, "Cash-like transfer policies can have relatively high consumption-inducing effects in groups and regions with limited consumption capacity," adding, "When designing the policy, it is important to set precise targets that comprehensively consider industry type, sales size, and regional characteristics."
The coupons are a transfer expenditure concept. Money in government accounts is moved to citizens' accounts. For the nation as a whole, the money did not decrease or increase. Economic growth begins when citizens spend the money they receive.
The coupons were paid out twice last year, totaling 13.522 trillion won. In the first round, all citizens received 150,000 won. However, vulnerable groups and residents outside the Seoul metropolitan area received an additional 150,000–250,000 won. In the second round, 100,000 won was paid to all citizens in the 90% income bracket.