The Optimal Tax Burden Ratio in Korea (in Korean)

Young Jun Chun () and Chong-Bum An ()
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Young Jun Chun: Hanyang University
Chong-Bum An: Sungkyunkwan University

Economic Analysis (Quarterly), 2007, vol. 13, issue 3, 111-156

Abstract: We attempt to predict the optimal tax burden ratio in Korea, using an altruistic family model. As of 2005, the optimal level of the tax burden ratio, defined as the ratio of the total tax burden to GDP, is shown to be higher than the actual tax burden ratio. However, the optimal ratio will fall substantially to reach 23%-24% by around 2070. This downward trend reflects the fact that current social insurance policies redistribute the resources from future generations to the current generations, implying that tax policies should be designed to mitigate the intergenerational inequity resulting from social insurance policies. We also show that, in contrast to the optimal tax burden ratio, the actual tax burden ratio will rise for a considerable time, to exceed the optimal tax burden ratio from the mid-2010s, assuming the Korean economy follows the paths of economic development and fiscal policy which the developed countries have over the past several decades. This discrepancy between the actual and the optimal tax burden ratios implies that the current fiscal policies are not effective in mitigating intergenerational inequity resulting from the social insurance policies, and that the Korean government therefore needs to maintain a cautious position in decision making on fiscal policies likely to result in substantial increases in government expenditure in the future.

Keywords: optimal tax burden ratio; intergenerational equity; rate of national burden; government expenditure (search for similar items in EconPapers)
JEL-codes: E6 H21 O5 (search for similar items in EconPapers)
Date: 2007
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