The effects of equity, policy consensus and sanction on tax compliance

Su Jin Pae, Tae Sup Shim

Research output: Contribution to journalArticlepeer-review


In South Korea, policies to increase tax equity, such as increasing the highest income tax rate and reducing tax-exempt status, have been discussed, and a subset of related laws have recently been revised. This study analyzed the effects of vertical and horizontal equity on tax compliance and of policy consensus and sanctions on tax compliance under an equity policy. In an experiment, a hypothetical tax reporting situation was presented to business administration college students engaged in economic activities. The results suggested that strengthening vertical equity by raising the highest income tax rate can increase tax compliance. By contrast, reinforcing horizontal equity by reducing tax exemptions did not significantly affect tax compliance. This difference in outcomes implies that people perceive the concept of equity as vertical equity, that is, redistribution of wealth through taxation of high-income brackets. By contrast, tax exemption is viewed as benefiting low-income brackets. However, reducing tax exemptions may be perceived negatively as an overall tax increase. In addition, increasing policy consensus increased tax compliance. This suggests the need for policy consensus procedures, such as expanding public hearings on the tax legislative process. Lastly, strengthening sanctions did not significantly affect tax compliance. However, the importance of policy consensus prior to sanction was suggested, as the effect of strengthening sanctions on tax compliance or tax evasion depended on the level of policy consensus.

Original languageEnglish
Pages (from-to)285-321
Number of pages37
JournalKorean Accounting Review
Issue number5
StatePublished - 2020


  • Horizontal equity
  • Policy consensus
  • Sanction
  • Tax compliance
  • Vertical equity


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