"Taylor Rule Should Be Introduced for Future Response Fund's Government Bond Redemption"

KDI and National Research Council for Economics, Humanities and Social Sciences
host the "2027 Budget Bill and Future Response Fund Forum"

As the government announced its plan to use 12 trillion won—equivalent to 11% of the Future Response Fund’s total—toward redeeming government bonds, suggestions have emerged that a separate set of guidelines should be established to determine the ratio of fund accumulation and government bond redemption.

At the “2027 Budget Bill and Future Response Fund Forum” held on September 11 by the National Research Council for Economics, Humanities and Social Sciences and the Korea Development Institute (KDI), Professor Woo Sukjin of Myongji University remarked, “There does not seem to be a clear rule yet for how much to accumulate in the fund and how much to use for debt repayment. Like the Taylor rule in monetary policy, it is necessary to devise an accumulation rate that takes into account export volatility, future fiscal demand, debt gap, and fund gap.”

The Taylor rule is a guideline used to determine an appropriate monetary policy rate by considering economic growth and inflation rates. Applying this perspective to managing the Future Response Fund means that, rather than setting the scale of accumulation and redemption each year based on policy judgment, a standard should be established that is tied to specific fiscal and economic indicators.

Experts agreed on the need to create an accumulation-type fund such as the Future Response Fund when tax revenues temporarily surge. However, they also said it is necessary to clarify the fund's characteristics and operational principles.

Professor Lee Junghyuk of Hongik University pointed out, “It’s a structure that creates a ‘dam’ or ‘reservoir’ and allows for stable expenditure in future investments. The division of roles with the general account is also a notable issue.”

Professor Woo also cautioned that although the fund is currently allowed to be spent on future growth engines, youth, and regional education, many projects that used to be carried out through the general budget have now been incorporated into the fund’s projects. He warned against the possibility that, as resources increase, the scope of expenditures could expand excessively.

Some experts suggested that the fund’s direct projects should be limited to areas requiring large-scale, short-term investments with a capital or infrastructure focus and that routine, ongoing projects should still utilize the general account and other fiscal systems.

There were also calls to review the current guideline that permits changes of up to 30% to the fund's operations. Park Junghum, Head of Fiscal System Analysis at the Korea Institute of Public Finance, said, “Securing flexibility by revising the fund’s operational plan could continue to raise concerns about undermining accountability based on National Assembly oversight. It is necessary to consider applying stricter requirements to ordinary fund modifications.”

Concerns were raised about the structure of relying on tax surplus from underestimated revenue forecasts as a financial source for the fund. Lee Sangmin, Research Fellow at the Korea Institute of Public Finance, said, “Since fiscal authorities may have an incentive to make conservative revenue estimates in the main budget to expand the size of the Future Response Fund, the system must be designed to avoid creating improper incentives that undermine the accuracy of revenue forecasts.”

He added that although revenue forecasts inevitably carry uncertainty and can be wrong in hindsight, building a system where a larger forecasting error automatically increases a specific fund’s resources is problematic. Therefore, when surplus tax revenue occurs, a case-by-case decision should be made—based on the state of the economy, government bond interest rates, and national debt—on whether to reduce bond issuance, use it for additional spending, or allocate it to the fund.

This content was produced with the assistance of AI translation services.