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KMID : 1001320160430040001
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Social Welfare Policy
2016 Volume.43 No. 4 p.1 ~ p.23
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Evaluation on Public Pension System`s Fiscal Sustainability
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Yoo Hee-Won
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Abstract
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This research aims to evaluate public pension system`s fiscal sustainability based on more expanded notions and measuring means, away from one dimensional fiscal balance commonly used here in Korea. To this end, we measured its fiscal sustainability using Fuzzy Set ideal analysis based on EU`s Open Method of Coordination(OMC), adopting a government`s capability of covering expenses. This analysis shows that each government, in accordance with how OMC sub indexes (i. e. public pension expenses in the present and future, employment rate of the elderly, and effective retirement age) are combined, is classified as four categories: Financially Unstable; Excessive in Pension Expenses; Unfit for Labor Market; and Financially Stable. Each category has a weakness in terms of finance: Financially Unstable, for example, its financial unstability results from high pension expenses and early retirement Age; In case of Excessive in Pension Expenses, it is high pension expenses; and in the event of Unfit for Labor Market its problem originates from high early retirement age. For Financially Stable, to which Korea is applicable, its financial unstability is relatively low in terms of pension expenses and labor market, yet, we should bear in mind that it was possible at expense of the elderly`s provision to some degree. This means of evaluation finds a main reason of financial unstability in macroscopic contexts such as a government`s capability of using its national resources (productivity) and labor market`s restrictions (early retirement). For this reason, in process of seeking alternatives to secure financial stability, we will be less likely to rely on reduction of pension. In other words, it holds significance that it opens a door to new ways such as increasing national productivity and improving labor market conditions rather than simply reducing expenses in order to balance the budget.
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KEYWORD
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fiscal sustainability, balancing the budget, a government`s capability of covering expenses, Fuzzy Set ideal analysis
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