Economic Crisis and Intergenerational Economy: Lessons from Korea's 1997~98 Economic Crisis

경제위기와 세대 간 경제: 1997~98년 경제위기의 교훈

  • An, Chong-Bum (Department of Economics, Sungkyunkwan University) ;
  • Lee, Sang-Hyop (Department of Economics, University of Hawaii at Manoa) ;
  • Hwang, Namhui (Department of Economics, Sungkyunkwan University)
  • 안종범 (성균관대학교 경제학과) ;
  • 이상협 (하와이대학교 마노이 캠퍼스 경제학과) ;
  • 황남희 (성균관대학교 경제학과 대학원)
  • Received : 2009.10.19
  • Published : 2010.03.31

Abstract

This paper provides insight into some important features of the intergenerational resource allocation in Korea, before and after the financial crisis in 1997-98. Data sets of three periods before and after the financial crisis (1996, 2000, and 2005) were used to compare the results. This research particularly addresses two related issues: i) the generational effects of economic crisis, and ii) the capacity of age reallocation systems to spread economic risks across generations. The results show tremendous consumption smoothing and resource reallocation by age, during and after the financial crisis. Private education and private health consumption decreased for children between 1996 and 2000. However, the decrease in private education and private health consumption was mitigated by the increase in public consumption. It appears that the public sector did not only mitigate the adverse impact of the economic crisis on consumption, but it also reduced the widening disparity amongst generations. Within transfers, the public transfers for the elderly increased substantially as the private transfers decreased rapidly. Finally, there was a big increase in the asset-based reallocation of the elderly. The increase in asset-based reallocation was mainly due to an increase in asset income between 1996 and 2000, but it was almost entirely due to a decrease in saving (i.e. an increase in dissaving) between 2000 and 2005. This suggests that Korean elderly seemed to have some degree of supporting system during the crisis, even without sufficient pension benefits. The increased reliance on asset accumulation will be critical in the long-run in Korea, as public pension funds diminish due to population aging.

Acknowledgement

Supported by : 성균관대학교