Unclassified REFORMING THE TAX SYSTEM IN KOREA TO PROMOTE ECONOMIC GROWTH AND COPE WITH RAPID POPULATION AGEING

All Economics Department Working Papers are available through OECD's internet web site at www.oecd.org/Working_Papers JT03259986 Document complet disponible sur OLIS dans son format d'origine Complete document available on OLIS in its original formatECO/WKP(2009)12 ABSTRACT/RÉSUMÉ Reforming the tax system in Korea 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