Can local business vouchers spur domestic demand?

President Lee Jae-myung talks to merchants at a traditional market in Seoul, Friday. Yonhap

By Lee Yeon-woo

• Published Jun 9, 2025 4:41 PM KST

While effectiveness still debated, Korea can’t afford to ignore struggling self-employed

What if the government handed out 250,000 won ($184.05) to every person, no questions asked, on the condition that it be spent locally?

Consumers would likely welcome the move. Local merchants, too, would stand to benefit. But its effectiveness remains a point of debate — among both politicians and also economists in Korea.

As the country grapples with a prolonged slump in domestic consumption, the new Lee Jae-myung administration is considering a return to one of his signature policies: local business vouchers.

"Fiscal spending alone can’t revive domestic demand, but right now the market is so dried up it’s about to crack," Lee said during a YouTube appearance on May 30. "People aren’t spending because they simply don’t have the money. Introducing local vouchers could get money circulating faster and more widely."

Local vouchers are a type of regional currency issued by municipal governments. They can be used only for consumer spending and typically offer a 7-10 percent discount on the original price. Usable only within designated areas, they are designed to boost spending at local businesses.

The concept existed long before Lee entered politics. However, the policy gained traction while he was mayor of Seongnam, Gyeonggi Province. From 2016 to 2023, the city distributed 1 million won annually to 24-year-olds in the form of gift certificates, earning praise from small business owners for driving up local spending.

The initiative drew national political attention to the potential of basic income, significantly raising Lee’s profile. In response, other municipalities quickly rolled out their own versions. During the COVID-19 pandemic in 2020, the central government even adopted a similar approach, distributing emergency cash relief to the entire population.

Yet the policy has remained a lightning rod for political controversy. Conservative critics have dismissed it as a populist measure that “throws a mountain of debt onto future generations.”

Now, Lee is once again attempting to include the program in a supplementary budget worth 20 trillion won. Rep. Jo Seoung-lae, chief spokesperson for the Democratic Party of Korea, said Monday that the party will move quickly to introduce a new round of local voucher distribution to all people.

Small business owners are showing strong optimism. A survey conducted by Korea Credit Data and released Monday found that 53 percent of 1,962 respondents had "very high expectations" for the policy.

"We need more active support for marginalized small businesses. With the economy slowing nationwide, there are few shops that can thrive on their own," a cafe owner in North Jeolla Province wrote in the survey.

According to Statistics Korea, the number of self-employed individuals stood at 5.5 million as of January, marking a decline of 206,000 compared to two months earlier. Their delinquency rates have also risen to the highest level in six years. As of the first quarter, outstanding loans held by self-employed individuals totaled 1,112 trillion won — an increase of more than 50 percent from the end of 2019.

"Local vouchers encourage people to visit stores they wouldn’t have otherwise," said Ryu Pil-sun, a policy adviser at the Korea Federation of Micro Enterprise.

Experts broadly agree on the need for debt relief and targeted financial support for vulnerable borrowers, especially as many self-employed individuals near the limits of their repayment capacity.

What remains in question, however, is the effectiveness of unconditional payouts in an increasingly constrained fiscal environment. The country is now projected to face its third consecutive year of tax revenue shortfalls.

Daejeon Mayor Lee Jang-woo already drew lines over the policy. "The city would have to allocate around 200 billion won annually for the policy. That would make it difficult to carry out major projects in Daejeon," the mayor said on June 2.

The Korea Institute of Public Finance's 2020 report said that while local voucher programs generate various economic benefits, "the issuance of local vouchers is associated with a range of costs and economic inefficiencies."

Kim Sang-bong, an economics professor at Hansung University, noted that people tend to spend the vouchers on secondary consumption like private education and medical expenses.

Still, the mounting struggles of the self-employed make it difficult for the government to ignore the issue. Self-employed workers currently account for 23.2 percent of the country's labor force, and the number continues to grow.

“The policy is a form of economic life support. At this point, there is no more effective measure. We must do what we can to keep viable small businesses alive,” said Jeong See-un, an economics professor at Chungnam National University.

Jeong added that local vouchers should be viewed as part of a broader effort to restructure the self-employed sector — supporting businesses as much as the government can, while also preparing to assist with closures when necessary.

“To say that this alone will completely revive the self-employed would be misleading. Still, this is currently the only way the regional economy can be sustained,” she said. “Don’t just oppose it. Present a viable alternative.”