Analysis of the Income Re-distribution Effect of Tax Policies
Published on 29 August 2018
Published by Income & Corporate Tax Analysis Division of the Estimates and Tax Analysis Department
Along with fiscal spending such as social security spending, taxes play a role in re-distributing income and wealth. As weakened income distribution has been raised as a structural challenge faced by the Korean economy since the financial crisis, there is a growing awareness that the government should take more responsibility to alleviate the income imbalance. Several efforts are being made to strengthen the income re-distributing function of tax policies such as by raising the maximum income tax rate and imposing a higher tax on corporate retained earnings.
Although the income re-distribution function of taxes is taking on a stronger role and the nation’s tax policy trend is evolving, the income re-distribution function of Korean tax policies does not appear to be as strong as that of other advanced countries. Systematic and comprehensive analyses are also seldomly conducted on the income re-distribution effects of Korean tax policies. This is because the main focus of Korean tax policy has been more on procuring resources for growth rather than on distribution.
In recognition of this situation, this report sheds light on the income re-distribution effect of Korean tax policy. For this, the report begins with a trend observation of the income re-distribution function Korea’s tax policy by each time period. Next, by utilizing the Bank of Korea National Accounts, an analysis is made on how the tax burden falls on each tax base such as labor income and capital income. Also, National Tax Service Consolidated Income Data is utilized to analyze how the tax burden is imposed on each income bracket. Finally, a separate analysis has been made on the income re-distribution effect of the revised Tax Code which has been enforced since 2018.