A Comment on
Prof. Chun’s paper
Kazumasa Oguro

Consulting Fellow, Research Institute of Economy, Trade andIndustry, Ministry of Economy, Trade and Industry,Government of JapanandResearch Fellow, Institute for International Policy Studies

Introduction
A very excellent research of the LCI on population aging in Korea,
by using Generational Accounting (GA).
- Because his job seems to be a big challenge, I have believed Prof.
Chun-san to be a too “tough” or “smart” gentleman

The research covers;
1) Projection of Long-term Care benefit and revenue2) Computing generational distribution of Net Tax Burden3) GA’s Analysis ( under 9 policy Scenarios )- Growth Rate ( gr ) = 1.5%

- Discount Rate ( r ) = 3.5%

The setting of this gap is very important., because
it affects the GA’s result dramatically.

4) Two Sensitivity Analyses- Growth Rate change ( gr = 0.5%, 1.5%, 3% )- Discount Rate change ( r= 2.0%, 3.5%, 5% )2

Main Results
 PAYGO system will create larger burden for future

generations- Population of Korea will be rapidly aging, as well as that of Japan

1) Long-term care (LC) benefit is projected to rise to 1.51.6% of GDP in the long-run.
2) LC contribution rate, measured as proportion of NHI
contribution revenue, needs to rise from currently
4.05% to about 80% until around 2060.
3) The lifetime net fiscal burden of 2040 (2080)
newborns is about 153% (190% ) of that of 2008
newborns.

3

The Lifetime Net Fiscal Burden
25,000

Unit: 1,000 won

20,00015,00010,000Case [1]Case [2]Case [3]Case [4]Case [5]Case [6]Case [7]Case [8]Case [9]5,000generation-5,000-10,000

Future1Future 2051015202530354045505560
65
70
75
80
85
9095
99

0-15,000
4

Source: Chun’s Paper

Background of Analysis
Zero-sum Game ofIntergenerational Transfer
 Current (implicit) debt = Sum of future surplus- Intertemporal government budget constraint

 If current implicit debt is unchanged, then “no” policy

will change the right hand side of the above equation- If some generations are better off, then other generations will beworse off.
- Sum of benefit for some generations will proportionately offset
the loss of other generations

5Comments
 How much is the implicit debt of health care andlong-term care system in Korea ?

- In Japan, some economists estimate : Health care and Long-term caredebt : 80% of GDP

 How should we share the burden of the above debt

between the current and future generations ?

- First, we may have to discuss the definition or the concept of“intergenerational equality”※ See Arrow & Suzumura (2002), Handbook of Social Choice andWelfare, North Holland- Second, in an aging economy, it is better to keep the accumulated
funds or to introduce the prefunds, if the government is concernedwith the burden of future generations※ See Fukui and Iwamoto (2006) , Suzuki (2008), Oguro (2007)
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Minor Questions
 How much is the net fiscal burden rate, measured as

proportion of the lifetime income of each generation ?

- Generally speaking, it can be expected that the net fiscal burden
affects not only the lifetime income of each generation, but also its
labor supply What is the intensity level of “intergenerationalaltruism” in Korea?

- Barro (1974) pointed out that, if parents have intergenerational
altruism, the theorem of Debt Neutrality is satisfied.
※ See Barro (1974) " Are Government Bonds Net Wealth?, " The
Journal of Political Economy, Vol. 82, No.6, pp1095-1117.

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My Specific Concerns
I’m also a staff in MOF, Japan. Therefore, I am interested insome practical public management issues of the Korean LTCsystem.
 Please let me know the following policy actions of the Korean
Government.
1) Coordination between health care and long-term care: medical care asa prevention of LT care
- Relative generosity of benefits for patients in LT care hospitals (covered by health insurance) and thosein LT care institutions (covered by LT care insurance)- Relative level of fees for LT care hospitals and LT care institutions2) Supply, Efficiency, Quality of LT care institutions and providers
3) Training and supply of LTC workers- In Japan, it is pointed out that there is huge lack in supply of LTC workers :the average wage of LTC = ¥ 220,000 (per month)
the average wage of all other industries = ¥ 300,000 (per month)8