How did Korea’s fiscal accounts fare during the COVID-19 pandemic?

South Korea undertook a number of important fiscal steps in 2020-21 to fight the COVID-19 pandemic. Key policies it adopted were common to most advanced economies, including transfers to support households, firms, and workers and increased resources for public health measures such as testing, tracing, quarantines, and vaccine rollouts. In terms of the increase in overall pandemic spending, Korea did as much as the typical advanced economy. Yet its fiscal deficit was lower than those of other advanced economies for reasons unrelated to the magnitude of its fiscal response. The authors find that Korea’s fiscal revenues rose more strongly than in most other advanced economies despite few discretionary changes to tax rates, reflecting strong revenues from asset-based taxes in an environment of rising asset prices. This serendipitous surge in revenues offset much of Korea’s pandemic-related increases in expenditures, keeping its fiscal deficit low. Korea’s GDP rose more strongly in 2020-21 than GDP in most other advanced economies, reflecting strong foreign demand for Korean exports and a better public health response, which minimized COVID mortality and necessitated fewer restrictions on mobility.