Effects of taxes and benefits on income distribution in korea

Myung Jae Sung, Ki Baeg Park

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

This paper examines the redistributive effects of Korea's fiscal policies, including consumption taxes and in-kind benefits. Using the Household Income and Expenditure Survey of 2007, we find that taxes and transfers reduce income inequality in Korea by 13.8 percent. Contrary to the popular belief that direct taxes are the key tool for redistribution, in-kind benefits, direct taxes, and social security contributions all decrease the Gini coefficient by 6.7, 4.7, and 2.9 percentage points, respectively. The redistributive effect of consumption taxes is small and negative (-0.5 percentage point). Policy simulations indicate that education spending financed by the personal income tax has a positive redistributive effect and that the lower 70 percent of households enjoy positive net benefits. Spending targeting the poor has a strong redistributive effect, which implies low popularity because the majority of households face net losses.

Original languageEnglish
Pages (from-to)345-363
Number of pages19
JournalReview of Income and Wealth
Volume57
Issue number2
DOIs
StatePublished - Jun 2011

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