Second round in single local currency … Lee Jae-myung, the Tax Research Institute, to fully refute

The Korean Institute of Tax and Finance, which sparked a debate on the effects of the local currency last year, supplemented and released a recent report, refuting the content of the Gyeonggi Research Institute report, which was critical of the Jo Se-yeon report. Gyeonggi-yeon is a research institution that upholds Gyeonggi Governor Lee Jae-myeong’s theory of local currency. Strictly speaking, the Gyeonggi-yeon report is not a report on the effects of the local currency and the empirical analysis is also incorrect. Furthermore, he explained that even if he accepted the content of the Gyeonggi-yeon report, the problems pointed out by Jo Se-yeon were still revealed. It is accepted that the state research institute again criticized Governor Lee Jae-myeong.

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

① Subsidy effect and local currency effect

Korea Financial and Tax Research Institute located in Bangok-dong, Sejong city on the 16th. / Photo = News 1

According to Cho Se-yeon on the 4th, the report of ‘The impact of the introduction of the local currency on the local economy’, which was published in the form of a ‘fiscal and financial summary’ in September last year, was supplemented and recently published. As if criticism from the Gyeonggi Research Institute and Gyeonggi Gyeonggi Governor Lee Jae-myeong were taken into account, related details were mentioned in detail, such as the review of previous research and the limitations of the research.

Regarding the Gyeonggi Research Institute’s ‘Analysis on the Impact of Local Currency on Small Businesses in Gyeonggi-do: Comprehensive in Q1 and Q4 2019’, which was published after the release of Jo Se- yeon, There is a difficult aspect, ”he explained.

Gyeonggi-do is believed to have provided 2.183 billion won in local currency for free, including 17 billion won for youth dividend and 42.3 billion won for maternal health support projects in 2019. This one did not it is the net effect of local currency sold at a 5-10% discount, if not the effect of government subsidies. It should be understood as a combination of local currency bills. He added that to analyze the effect of payment in local currency as such a subsidy, the difference between when the subsidy is paid with a credit card or other means of payment such as cash and when it is paid in local currency should be compared.

② Empirical analysis without comparison. “It is possible to affirm the effect of the policy”

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

Se-yeon Cho noted that “because we do not control for 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 compare or past sales in multiple years in the same region to separate seasonal and regional effects.” No I can argue the causal relationship of the effect. “

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

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

According to the local currency settlement data 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 of the catering and distribution business, confirming the phenomenon concentration. 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 use should be decided in accordance with the policy objective of “protecting small business owners in difficult areas.”

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

“Local governments with good financial conditions should not apply”

In addition to the report from the Gyeonggi Research Institute, Jo Se-yeon also addressed the effects of local currency in the report on ‘Analysis of the Additional Budget Proposal’ from the National Assembly Budget Office. In this report, the plan stated: “Although the size of the issuance of local love gift certificates has expanded rapidly, verification of the effectiveness of existing studies on this is insufficient, and the appropriate issuance size in consideration of different financial conditions and “Needs to be reviewed”.

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

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

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 magazine, Need to study

Gyeonggi-do Governor Lee Jae-myeong (Photo = News 1)

On the other hand, the Korean Institute of Local Administration announced the results of a study that “after the introduction of the local currency, the added value increased by 80 billion won”, before the publication of the Joseon Cho companion report. From January to October last year, revenue in the region increased by 2 trillion won, and when considering support for government and local spending, an added value of 800 billion won was created.

Governor Lee Jae-myung reinforced his criticism on Facebook on 31 last month, spelling out the data from the Korea Administration Research Institute, saying, “The Ministry of Strategy and Finance, the Institute of Tax and Finance, the Conservative media and economic magazines that the local currency is wasting the budget should study. ” “They turn away from the small businessmen who suffer and from the truth, they make politics for the chaebol of distribution and even ruin the economy,” he added.

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

Reporter Kang Jin-kyu [email protected]