KDI "Selective Income Support for Vulnerable Groups More Effective in COVID-19 Response"

Publication of the Report on 'Household Sector Liquidity Risk Assessment and Policy Implications'
Providing 'Cash Payments to Vulnerable Groups' + 'Credit Support for Other Households' More Effective Than Lump-Sum 1 Million KRW Payment

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] In order to alleviate liquidity risks by household amid the novel coronavirus infection (COVID-19) crisis, an opinion has emerged that when the government provides fiscal support, it is most effective to selectively provide cash income support only to some vulnerable groups, while supporting credit for the remaining households.

Kim Young-il, a senior researcher at the Korea Development Institute (KDI), published a report titled "KDI Policy Forum, Checking Liquidity Risks in the Household Sector and Policy Implications" on the 16th with this content. The report's main point is that households lacking liquid assets to cope with deficits in household finances due to the COVID-19 crisis may face severe financial difficulties, and direct cash payments by the government would greatly help mitigate these risks.

According to Researcher Kim, if income falls by 20%, providing 1 million won alone would reduce the proportion of households at liquidity risk from 4.7% to 2.7%, a decrease of 2 percentage points, and providing 3 million won would reduce it to 1.5%, a decrease of 3.2 percentage points. He explained, "The reason why the proportion of households at liquidity risk significantly decreases even with cash payments worth 1 million won is that households that can escape liquidity risk with a small amount are relatively concentrated in the lower income quintiles."

For other households, Researcher Kim argued that selective support measures that provide credit support rather than cash payments are more effective in both mitigating household liquidity risks and saving government finances than uniform cash income support measures. He analyzed, "When income falls by 20%, if 1 million won is paid in cash to vulnerable households and credit is supported for asset-owning households with collateral capacity, the proportion of households at liquidity risk decreases by 3.7 percentage points to 1%. However, if 1 million won is uniformly paid to everyone, it decreases by 2 percentage points to 2.7%." He added, "This is because although the proportion of households at liquidity risk is low in the upper income quintiles, the absolute amount of electronic money itself is large, so credit support has a greater effect on mitigating liquidity risk than small amounts of income support."

However, to actually introduce such selective support measures, various household-level information is required, and equity issues may be raised. Researcher Kim stated, "To identify liquidity risk and asset ownership, an information infrastructure capable of grasping household income, expenditure, and asset information is necessary," and added, "Equity issues between households receiving income support and those not receiving it may arise, so discussions for social consensus may be needed." He also added, "The purpose of support for households is not only to alleviate liquidity risks but also to activate domestic demand and welfare, so comprehensive judgment is required."

This content was produced with the assistance of AI translation services.