The South Korean government is set to distribute “People’s Life Recovery Consumption Coupons” worth 13.3 trillion won,aiming to boost the nation’s economy. The initiative, however, has ignited a debate regarding the most effective distribution method, with opinions divided between global and selective approaches.

The stimulus package,approved as part of the second additional revision budget,will provide citizens with coupons ranging from 150,000 to 250,000 won. The breakdown is as follows: the top 10% (5.12 million people) will receive 150,000 won, the general public (42.96 million people) will receive 250,000 won, the next class (380,000) and the basic beneficiaries (2.71 million).

An additional 20,000 won per person will be allocated to 84 farming and fishing villages.

Economic Impact: How Much Will Consumption Increase?

Past studies on similar stimulus measures, such as the Corona 19 Disaster Assistance Fund, suggest that the new consumption creation effect typically ranges from 20-40%. The government anticipates a similar outcome with these coupons.

“There may be differences by industry, but 20-40%of consumption effects are generated in a macroscopic study.”

In May 2020, researcher Kim Mi -ru at the Korea Development Institute (KDI) analyzed the impact of the first emergency disaster subsidy, which provided 400,000 to 1 million won per household.The study revealed that the stimulus was most effective for (semi) durable and essential goods that did not require face-to-face interaction, while the impact was less pronounced in the face-to-face service and food industries.

Research from Lee Woo -jin (Korea University),Kang Chang -hee (Chung -Ang University),and Woo Seok -jin indicated that the marginal propensity to consume from the Corona 19 emergency subsidies was between 0.362 and 0.421 in the second quarter of 2020, and between 0.401 and 0.481 in the third quarter.Their analysis estimated that 14.2 trillion to 17 trillion won of the total emergency subsidies were used for consumption spending during that period.

Moreover, an analysis by the National Institute of Economic Affairs found that disaster subsidies in the United States in 2020 led to a 25-40% increase in consumption.

Divided Opinions: Universal vs. Selective Payments

The current approach, characterized as a “mix” of universal and selective methods, has sparked debate. Some argue for a swift, universal payment to all citizens, while others contend that excluding the top 10% is justifiable.

Professor woo Seok -jin has criticized the government’s decision to separately classify the top 10%, arguing that it will delay the distribution of the “People’s Life recovery Consumption Coupon.”

Conversely, Kim stated that “The government seems to have chosen to apply for 10%in terms of social integration.”

Experts have also suggested the need for institutional safeguards to minimize potential side effects. Professor Woo cautioned against the possibility of “gift vouchers” being exchanged for cash at a discount if the coupons are issued as tributary gift certificates.

About the Author: Amelia Kim is a seasoned economic reporter with a focus on South Korean fiscal policy and consumer behavior.