Single local currency second round… Lee Jae-myung, the Tax Research Institute, to fully refute

The Korea Institute for Taxation and Finance, which sparked a debate on the effects of local currency last year, supplemented and published a recent report, refuting the contents of the Gyeonggi Research Institute’s report, which criticized the Jo Se-yeon report. Gyeonggi-yeon is a research institution advocating the local currency theory of Gyeonggi Governor Lee Jae-myeong. Strictly speaking, Gyeonggi-yeon’s report is not a report on the effects of local currency, and the empirical analysis is also wrong. In addition, he explained that even if he accepted the contents of the Gyeonggi-yeon report, the problems pointed out by Jo Se-yeon were still revealed. It is accepted that the state-run research institute once again criticized Governor Lee Jae-myeong.

On the other hand, Gyeonggi Governor Lee Jae-myeong recently raised the offensive to’study’ to Jo Se-yeon and others who said that local currency is wasting the budget through Facebook. It is an analysis that the debate on the effectiveness of local currency that unfolded in September last year is showing signs of reappearance from the beginning of the new year.

① Subsidy effect and local currency effect

According to Cho Se-yeon on the 4th, the report of’The Impact of Local Currency Introduction on Local Economy’, which was released in the form of a’tax and financial brief’ in September last year, was recently supplemented and published. As if taking into account the criticism of Gyeonggi Research Institute and Gyeonggi Gyeonggi Governor Lee Jae-myeong, related details were mentioned in detail such as review of prior research and limitations of research.

Regarding the Gyeonggi Research Institute’s’Analysis on the Impact of Local Currency on Small Businesses in Gyeonggi-do: Comprehensive in the 1st and 4th Quarters of 2019′, which came out after the release of Jo Se-yeon’s brief, There is a difficult aspect,” he explained.

It is believed that Gyeonggi-do provided 2183 billion won in local currency for free, including 17 billion won per youth dividend and 42.3 billion won for maternal health support projects in 2019. This is not the net effect of local currency sold at a 5-10% discount, but the effect of government subsidies. It should be understood as a combination of and local currency effects. He added that in order to analyze the effect of local currency paid as such a subsidy, the difference between when subsidy is paid by credit card or other payment method such as cash and when paid in local currency is to be compared.

② Empirical analysis without comparison object..”Possible to assert policy effect”

He also pointed out that complementary points were found in the empirical analysis of the Gyeonggi-yeon report. The survey was conducted on 3,800 businesses during 2019 alone, and the time trend or time fixed effect by industry and region was not controlled.

Se-yeon Cho pointed out that “because we do not control different economic conditions by region (regional fixed effect), we cannot distinguish whether the change in retail sales is due to local currency or seasonal or regional factors.”

“In general, researchers have additional control by using information on sales of small business owners in different regions to be compared or past sales in multiple years in the same region in order to separate seasonal and regional effects. “I can’t argue the causal relationship of the effect.”

③ Gyeonggi-yeon report also reveals the problem of local currency

It was also pointed out that even if the contents and results of the Gyeonggi Research Institute report were acknowledged, the problem of minor effects on the total sales of small business owners pointed out by Cho Sei-yeon’s previous report and the large deviation of the sales effect due to local currency among small business enterprises was the same.

According to the data on settlement of local currency in the first half of 2020 presented by the Gyeonggi Research Institute, more than 50% of the amount of local currency used was used in the rest restaurant business and distribution business, confirming the concentration phenomenon. It was also mentioned that hospitals ranked first in the amount of use per franchise, and relatively high-income industries were used. It was suggested that the usage should be decided according to the policy goal of’protecting small business owners in difficult areas’.

He pointed out that some industries are relatively marginalized from benefits due to regional restrictions. The amount of use is not large because of the provision that the lodging and travel businesses should only be used within the region.

“Local governments with good financial conditions should not apply”

In addition to the Gyeonggi Research Institute’s report, Jo Se-yeon also dealt with the effects of local currency in the report on’Analyzing Additional Budget Proposal’ by the National Assembly Budget Office. In this report, the plan said, “Even though the size of issuance of local love gift certificates has been rapidly expanded, verification of the effectiveness of existing studies on this is insufficient, and the appropriate issuance size in consideration of the different financial conditions and financial burdens of local governments “It needs to be reviewed.”

Incorporating these points, Jo Se-yeon maintained the analysis results and policy recommendations from September last year. Se-yeon Jo argued that it should be noted that if the local government’s introduction of local currency results in an increase in sales in the region, it will lead to a decrease in sales at the adjacent local government’s retail stores. It was also said that if neighboring local governments responded to this, introducing local currency, the effect of activating the local economy would disappear and small local governments could suffer damage.

Accordingly, he argued that the central government’s financial support needs to be concentrated on the Onnuri gift certificate, which is a national-level gift certificate rather than local currency, and that even if local currency discounts are supported, differential support should be given in consideration of the economic conditions of each local government. Local governments with high fiscal independence, such as Gyeonggi-do, are believed to have presented a plan to yield central government support to those with poor financial conditions.

He also mentioned that it is better to directly support rental fees and management stabilization funds than the gift certificate support method that indirectly helps small business owners.

Lee Jae-myeong, “Ministry of Finance·Jo Se-yeon·Economic Journal, Need to Study”

On the other hand, the Korea Institute for Local Administration announced the results of a study that “after the introduction of local currency, the added value increased by 80 billion won,” prior to the release of the supplementary report for Joseon Cho. As of January-October of last year, income in the region increased by 2 trillion won, and when considering government and local expenses support, added value of 800 billion won was created.

Governor Lee Jae-myung reinforced his criticism on Facebook on the 31st of last month, explaining in detail the data from the Korea Administration Research Institute, saying, “The Ministry of Strategy and Finance, the Institute of Taxation and Finance, the conservative media, and the economic journals that local currency is wasting the budget should study.” “They turn away from the suffering small businessmen and the truth, do politics for the distribution chaebol, and even ruin the economy,” he added.

However, the research conducted by the local administration research institute assumed that 10% of the 11,402.8 billion won in local currency issued in January-October last year was subsidized by government and local expenses. This is the effect of local money that was fully supported by the government and local expenses. It is pointed out that it was not distinguished from.

Reporter Kang Jin-kyu [email protected]