勤勞所得稅額控除制度가 勤勞者의 可處分所得에 미치는 效果

Effects of Earned Income Tax Credit on Disposable Income of Workers in Korea

The system of earned income tax credit in Korea gives credit to taxpayers who are workers the amount as much as 20% of income tax calculated. And if that amount is higher than 500,000, the maximum, which is \500,000, is given. It is analysed by this paper that this system is lack of vertical equality, particularly because the lowest income workers who have earned income lower than about \7 million are entirely excluded from that credit. And more, the marginal cost of expanding the system to give more credit to workers is too high. It is estimated that the marginal cost of expanding the credit ratio from 20% to 30% is about \242 billion, that was amount to 4.74% of calculated income tax revenue. So it is suggested to change the system into which lowest income workers are included and refunded when the earned income tax credit is higher than the amount of calculated earned income tax of that taxpayer. Further more, many other favorable effects are expected with this new system. But it should be recognized that the effects are quite different in the phase-out range, and the expansion in the Earned Income Tax Credit in this range produces generally unfavorable results. So there is trade-off, reminiscent of the well-known trade-off faced in setting the policy parameters of a pure Negative Income Tax. It is the latter work to design the Earned Income Tax Credit in a way that would accentuate the favorable effects of the phase-in range and diminish the unfavorable effects in the phase-out range.