Effects of Aging and Expanding Social Security on the Korean Economy

This paper analyzes the impact of social security and fiscal policy changes on the Korean economy by using Gertler’s overlapping generation (OLG) model, which is useful for quantitative analysis of policies. In particular, this paper is significant in that it simultaneously analyzes aging and social security expansion. Under the current social security policy, as the aging population intensifies, retirees’ labor supply increases, total consumption in the economy decreases, and the real interest rate falls. Expanding social security in line with the aging population leads to a decrease in the labor supply and an increase in consumption of retirees. Therefore, total consumption in the economy increases, and the real interest rate increases slightly. This paper also suggests that reinforcement of social security and expansionary fiscal policy cause intergenerational transfer assets. In particular, workers are greatly influenced by tax burden level that changes with social security and fiscal policy.