제목 : Analysis of impacts of local contents subsidy on local economy


저자 : Kookyoung Han



Abstract
During the recent years, the central government and local governments in Korea promoted several campaigns such as social distancing in order to slow down the rapid spread of COVID-19. The Korea economy was expected to decline due to these campaigns, and therefore the governments needed to handle the anticipated declines. The central government in Korea subsidized citizens with cash, whereas the local governments in Korea usually subsidized their residents with local contents subsidies. Local contents subsidies must be used within the local area designated by the issuer of the local contents subsidies. In this paper, we use a mathematical model to analyze the impact of cash subsidies and local contents subsidies on the economy. Implications of our model are as follows. First, subsidies cause the persistent inflation over time. Second, local content subsidies have the same impact on the economy as cash subsidies if the amount of local contents subsidies does not exceed the normal amount of the expenditures within a local area. Third, local contents subsidies can have a crowding out effect. More specifically, the increase in local consumption can be smaller than the amount of local contents subsidies if local goods can be easily substituted with nonlocal goods. Fourth, subsidies can be harmful to those who face financial difficulties. Fifth, it would be better to subsidize low-income households more to increase the social welfare, instead of subsidizing households with an equal amount.