The Macroeconomic Effects of Income Tax Changes in Korea*

Byoung Hoon Seok () and Hye Mi You ()
Additional contact information
Byoung Hoon Seok: Department of Economics Ewha Womans University Seoul, Republic of Korea
Hye Mi You: College of Economics and Finance Hanyang University Seoul, Republic of Korea

Asian Economic Papers, 2025, vol. 24, issue 1, 128-149

Abstract: This study examines the macroeconomic effects of a recent income tax revision in Korea using a dynamic stochastic general equilibrium (DSGE) model with heterogeneous households. The study utilizes a simple net tax function that reflects the current tax-benefit structure and estimates the function parameters using National Survey of Tax and Benefits data. We propose a novel approach to identify how the income tax revision affects the net tax function, solving for a partial equilibrium model that results in the same changes in income tax revenue and tax incidence by income level as the government projected. The study finds that the income tax revision increases the average tax burden and reduces the progressivity of the tax-benefit structure. After incorporating these changes into the DSGE model, the study shows that the income tax revision has a positive impact on aggregate consumption and the total capital stock, leading to a 0.45 percent increase in GDP in the long run. However, the income tax revision worsens income inequality and reduces consumer welfare by 0.33 percent.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1162/asep_a_00930
Access to PDF is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:asiaec:v:24:y:2025:i:1:p:128-149

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().