The worries about fiscal sustainability in developed countries have created a controversy regarding welfare policy in Korea. Fiscal conservatives call for tighter controls on welfare spending, because once spending starts growing, it tends to become hard to reduce and reverse from that point. On the other hand, some call for greater welfare spending in order to temper the effects of economic polarization, social unrest, unemployment, and an aging population. In this context, it is important for policymakers to create a mechanism in which welfare policy supports sustainable economic growth, while minimizing a distortion effect that stems from excessive public intervention.
Given the aging population, it is likely that Korea will be obliged to spend more on welfare policy. The important question is how to create a sustainable welfare model that reflects Korea’s particular economic and social development. In this regard, the following issues should be discussed in near future. First, it is necessary to maximize the existing welfare policy, but also develop ways to raise taxes in a growth-friendly manner. Second, we have to create an atmosphere conducive to policy innovation. Third and last, we must establish growth-oriented welfare regimes with a special focus on strengthening human capital and employment rates.