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Reforming the Tax System in Korea to Promote Economic Growth and Cope with Rapid Population Ageing

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Author Info
Randall S. Jones
Abstract

Korea has one of the lowest tax burdens in the OECD area, reflecting its small public sector. However, rapid population ageing will put upward pressure on government spending. The challenge is to meet the long-run need for greater expenditures and tax revenue while sustaining strong economic growth. A pro-growth tax reform implies relying primarily on consumption taxes for additional revenue. There is also scope for raising personal income tax revenue from its current low level by broadening the base by reducing the exemptions for personal income. The planned cuts in the corporate tax rate should be financed at least in part by reductions in tax expenditures. The broadening of direct tax bases would also help finance an expansion of the earned income tax credit to address widening income inequality. In addition, the local tax system should be simplified and reformed to enhance the autonomy of local governments.

Réformer le système fiscal en Corée afin de favoriser la croissance économique et de faire face au rapide vieillissement démographique
La Corée est l’un des pays où la charge fiscale est la plus faible dans la zone de l’OCDE, en raison de la petite taille du secteur public. Cependant, le rapide vieillissement démographique va exercer une pression grandissante sur les finances publiques. La difficulté consiste à répondre au besoin à long terme de dépenses publiques et de recettes fiscales accrues tout en soutenant une vigoureuse expansion économique. Pour qu’une réforme fiscale aide à la croissance, elle doit privilégier les impôts sur la consommation comme source de recettes supplémentaires. Il est aussi possible d’augmenter le produit de l’impôt sur le revenu des personnes physiques, actuellement peu élevé, en élargissant l’assiette grâce à une diminution des exonérations. Les réductions prévues du taux d’imposition des sociétés devraient être financées, en partie du moins, par des compressions de dépenses fiscales. L’élargissement des bases d’imposition directe aiderait aussi à financer une extension du crédit d’impôt sur les revenus d’activité afin de remédier aux inégalités croissantes de revenu. Par ailleurs, le système d’impôts locaux devrait être simplifié et réformé afin de renforcer l’autonomie des collectivités territoriales.

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Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 671.

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Date of creation: 20 Feb 2009
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Handle: RePEc:oec:ecoaaa:671-en

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Related research
Keywords: capital gains taxes; corporate income tax; earned income tax credit; environmentally-related taxes; Korean tax system; local tax system; personal income tax; property tax; relative poverty; tax expenditures; tax reform; tax wedge; VAT; coin fiscal; crédit d’impôt sur le revenu d’activités professionnelles; dépense fiscale; fiscalité locale; fiscalité; impôt sur les bénéfices; impôt; pauvreté relative; réforme de la taxation; système de taxation coréen; taxe foncière; taxes liées à l'environnement; TVA;

Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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