The Discrepancy between Statutory Tax and Real Tax Burden

This paper estimates the effective income tax function using a microlevel dataset. The purpose is to establish the actual tax so that the effect of the changes to income tax law (intended to reduce the tax burden) can be evaluated. Income tax policy in Korea has focused on reducing the tax burden through a reduction in the statutory tax rate that allows a greater level of allowance and deduction. However, the real tax burden is moving in the opposite direction to that intended, as there was an increase in effective and marginal tax rates from 1998-2005. The impact appears weaker after the change in the law than the effect of the increase in the nominal income levels for the taxpayers. Marginal tax rates increased from 5.12% in 1998 to 6.67% in 2005, despite the changes in the income tax law that were meant to reduce the tax burden on the taxpayer. There is a need for greater emphasis on examining the impact of the tax change on the actual tax burden, rather than blindly accepting that the law has furthered this aim.