The effects of COVID-19 and response measures on poverty, household income and household consumption expenditure in South Korea

Abstract

PurposeIn response to the pandemic, the Korean government introduced fiscal measures: including the Emergency Disaster Relief Funds which is the first-ever universal benefit in Korea. This paper identifies the effects of the measures on poverty, household income and household consumption expenditure under the disproportionate effect of the pandemic.Design/methodology/approachThis study analysed the Korea Household Income and Expenditure Survey (KHIES) with Changes-in-Changes at five percentiles (5, 25, 50, 75 and 95%) instead of Difference-in-Differences (DD) because the parallel trends assumption of DD cannot be investigated due to the recent KHIES redesign. In addition, it also exmined the effects on vulnerable groups (e.g. female, elderly and young households).FindingsCOVID-19 has had prompt and disproportionate effects on the vulnerable, such as low-income, female and elderly households. However, the government measures had a limited effect. First, the measures could not mitigate the initial income reduction and only had temporary positive effects on income and consumption expenditure. Second, young households tended to save the relief instead of present consumption. Lastly, education disparity was observed at 25 and 50%. Therefore, this study suggests that response measures need to be sustainable and concentrated on the vulnerable.Originality/valueA large literature estimated effects on either household income or household consumption expenditure, and focused on macroeconomic indices (e.g. marginal propensity to consumption). This study analysed both income (poverty) and consumption expenditure and found policy implications for better welfare system in an economic downturn.