The Fiscal Burden of Korean Reunification: A Generational Accounting Approach

This paper uses generational accounting to assess the fiscal impacts of Korean reunification. Our findings suggest that early reunification will result in a large increase in the fiscal burden for most current and future generations of South Koreans. The Korean reunification's fiscal impact appears much larger than that of German reunification, due to a wider gap in productivity between the two Koreas and North Korea's much larger share of the unified country's population. The projected large-scale fiscal burden on South Korea is attributable primarily to the rapid increase in social welfare expenditure for North Korean residents, rather than to the direct reconstruction cost of the North Korean economic system after the disintegration of its old economic regime.