Fertility Decline and Tax Revenues in South Korea

Joan E. Madia, Francesco Moscone, Asieh Hosseini Tabaghdehi, Jong-Chol An and Changkeun Lee

No 2024-02, FBK-IRVAPP Working Papers from Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation

Abstract: This study investigates the link between taxation and fertility in South Korea, focusing on the historical period surrounding the mid-70s tax reforms. The longstanding decline in fertility rates has been widely discussed in relation to factors such as increasing human capital, women’s employment, and rising housing costs, leading couples to postpone or forego childbearing decisions. However, less attention has been paid to how tax policies that influence disposable income and economic planning horizons could indirectly affect fertility choices. While taxation is crucial for funding social security systems, policies that reduce household resources without considering demographic impacts may have unintended consequences on population dynamics. Using a time-series of country-year from the World Bank, we exploit South Korea’s major mid-1970s tax reforms as a natural experiment to test the hypothesis that higher tax burdens also contributed to reducing fertility over the subsequent decades. The results suggest considerable negative effect of the mid-1970s tax reforms on fertility in South Korea. This macro-analysis shows tax policies can influence population dynamics, but lacks insight into how tax changes affected childbearing decisions at the household level. Future micro-level studies could reveal mechanisms linking tax policies and fertility behavior. Still, this study highlights potential demographic impacts of taxation policies. Policymakers should consider such consequences when modifying tax systems, especially policies related to family resources and child affordability.

Keywords: Fertility; Taxation; Synthetic Control Method (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-pbe and nep-pub
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