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Intergovernmental Distribution of VAT Revenue in Korea: Local Consumption Tax

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  • Jeongwan Kim

    (Daejin University)

Abstract

In Korea, local consumption tax (LCT) has been established as a form of VAT revenue share in 2010. LCT takes 5% of the national VAT revenue as the financial base and distributes it to the local governments based on the regional sharing ratio of private final consumption expenditures (vertical equity) and weighting system to mitigate regional financial disparity (horizontal equity). This paper first evaluates current LCT distribution in terms of both equities, suggesting that new distribution indices be needed to satisfy both goals. Before producing them, by reassessing the status and the goal of LCT, this paper suggests LCT as a new local transfer, not a local tax, should pursue another goal, the correspondence between production and incidence of regional value-added which is VAT resource and ultimately LCT base, because its interregional migration is substantial in Korea. Based on such status and goals, new distribution indices are suggested and the findings are evaluated.

Suggested Citation

  • Jeongwan Kim, 2014. "Intergovernmental Distribution of VAT Revenue in Korea: Local Consumption Tax," Korean Economic Review, Korean Economic Association, vol. 30, pages 109-131.
    • Handle: RePEc:kea:keappr:ker-20140630-30-1-06
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Value-added Tax; Local Consumption Tax; Private Final Consumption Expenditures;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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