OECD Economic Surveys: Korea 2008
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This 2008 edition of OECD's periodic review of Korea's economy looks at key challenges including reforming the tax system, boosting productivity in the services sector, and sustaining growth by reforming labour markets and improving education.
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Reforming the tax system to promote economic growth and cope with rapid population ageing
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.
Also available in: French
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Click to download PDF - 460.61KBPDF