Tax Policy, Welfare Policy, and Economic Inequality in Contemporary Korea and Japan

Sung Ho Park (박성호)

Until recent decades, Korea and Japan presented a unique tax policy that was centered on an idea of fiscal developmentalism (Dewit and Steinmo 2002; Ishi 2001; Kim 2009; Yang 2017). Overall taxation was kept low (even lower than that of OECD countries with liberal market economy), but capital owners paid more contributions than workers and consumers did. Since the 1990s, both countries have exhibited a significant change in their tax policy. They have expanded the room for fiscal neoliberalism by replacing their previous commitment to developmentalism (Ide and Steinmo 2009; Yang 2017; Woo 2011). As a result, effective tax rates for all major tax categories (except for social security contribution) are now set around the lowest bounds of all OECD countries.

This book has two aims. First, it seeks to explain the rise of fiscal neoliberalism by analyzing the electoral partisan politics of Korea and Japan. While appreciating that various causal conditions – including economic conditions (globalization, demographic change, etc.), the lack of coherent sociopolitical base for tax increase, and the historical legacy from low tax policy (Park and Ide 2014; Ide and Steinmo 2009; Shin 2012; Yang 2013; Woo 2011) – have all set a structural pressure towards the neoliberal turn in tax policy, the book argues that the actual scope of the change cannot be explained unless we look at the partisan electoral dynamics behind the fiscal adjustment processes.

Next, the book examines the implications of the new fiscal development on economic inequality in Korea and Japan. In particular, it examines a combinatory effect that the tax policy has developed with welfare spending policy to produce the final outcomes in the inequality. Considering that most policy-oriented studies on Korea and Japan have examined either tax or spending policy (but rarely their interaction) to explain varying patterns of economic inequality (Dewit and Steinmo 2002; Jones 2007; Kim 2013; Kim 2015; Park and Ide 2014; Yang 2017), the book presents a more integrative approach that incorporates the spending-oriented accounts into a new fiscal account.

The author conducts a comparative process-tracing analysis for the two country cases, relying on various combinations of qualitative and quantitative data on taxation, government spending, and economic inequality. Considering that other OECD studies have brought similar explanatory approaches to the fiscal policy and politics across the countries (Basinger and Hallerberg 2004; Beranendi and Rueda 2007; Guillaud et al. 2017; Swank 2006, 2016), this book also presents a bridge between Korean/Japanese studies and broader OECD studies, contributing to more comparable approaches to the research agenda.

ToC: 1. Introduction; 2. Literature Review: Tax, Welfare, and Economic Inequality in Korea and Japan; 3. The Evolution of Tax Policy: A Rational Partisan Approach; 4. The Tax and Welfare Linkage: An Integrative Fiscal Approach; 5. The Implications on Economic Inequality; 6. Conclusion