근로소득세 공제 및 감면 제도의 귀착효과 분석

Abstract

This paper analyses empirically the effects of income deductions and credits for individual taxpayers on the incidence of the Korean income tax. An explicit form of deduction function, defined in the same way as tax function, plays a pivotal role in characterizing the effect of deductions on tax incidence. The data of income taxes from National Tax Service is applied to estimate the dedution function, based on the nonparametric method of cubic spline. Since the size of data is not enough for reliable estimation of deduction functions, we make extensive use of institutional information in correction for the possible bias of nonparametric estimates. In a case of deductions for labor income or pension, for example, we can easily derive their closed form of deduction function, instead of estimation them statistically. Our estimation results show that most of main deductions are increasing with respect to income, implying that they tend to concentrate on the group of high-income earners. It is well known that the effective benefits from deductions determined by the marginal income tax rates facing taxpayers. Thus, the highly progressive income tax of Korea magnifies greatly the benefits from deductions to the taxpayers on high incomes, which, in part, explains the large amount of deductions in Korean personal income tax. The redistributive role of income tax is also weakened by the ever-growing deductions w.r.t. incomes. One of remedies for this problem lies in making the steep deduction function somewhat flat, or placing a cap on some of important deductions. As a realistic alternative, one can try to transform main deductions to tax credits to nullify the magnification effect of marginal tax rates, which begins to be a part of a new trend in the recent tax reform of Korea.