Empirical Evidence of the Discretionary Behaviors of the Tax Administration: A Korean Perspective

Abstract

Does the tax administration exercise discretion in adjusting its tax collection efforts according to the revenue situation? If so, what are the policies? This paper attempts to identify the discretionary behavior of the tax administration in a Korean context. To do so, I estimate the correlation between some variables representing the discretionary behavior of the tax administration and the tax collection progress ratio. This analysis shows that there is strong evidence for the discretionary behavior of the tax administration. This means that the intensity of tax collection efforts has changed according to the conditions of tax collection. The size of the discretionary behavior of the tax administration is estimated at 2.9% of total tax revenue (average absolute value in 1975-2015). The increase in the discretionary behavior of the tax administration can cause several problems. The fact that a significant part of tax revenue is determined by administrative behavior rather than by the law should be criticized if we consider the “no taxation without law” principle. Moreover, the discretionary behavior of the tax administration can lead to a weakening of the automatic stabilizers by reducing the sensitivity of the pro-cyclical movement of tax revenue.