Are Distributional Impacts of Political Regime Shifts on Personal Income Taxation Significant in Korea?

Abstract

This paper evaluates the distributional impacts of political regime shifts on personal income tax (PIT) between the radical and the conservative parties over the last two decades in Korea; most Korean people believe that tax policies have alternated between equity (i.e., redistribution) and efficiency (i.e., growth) depending significantly on the political stance of administrative government, even though their subjective belief has never been rigorously verified. The analysis includes estimation of changes in effective PIT burden and its redistributive effects between administrations. The changes in PIT burden were decomposed by factor to consistently compare the real effects of political regime shifts by eliminating the noise caused by other factors. The radical administrations were likely to fortify the redistributive effects of the PIT, while the conservative administrations were likely to enhance efficiency at the expense of equity. The conservative administrations were likely to decrease effective PIT burden to a certain extent. The radical administrations were likely to lower marginal PIT rates to cope with inflation, but this strategy did not fully offset the inflationary effects of nominal income growth; as a result, effective PIT rates increased a little, unlike during the conservative administrations. However, contrary to the subjective belief of Korean people, the changes in redistributive effects of the PIT were not obvious or clearly distinctive between administrations.