A Comparative Study of Tax Systems between Korea and Japan

The Korean and Japanese tax systems were almost the same directly after the Second World War, but they are much different from each other at present. At first, this paper demonstrates that the difference of tax systems can be explained as the difference of individual preferences. Next, it attempts to reclassify all tax items by income taxation, consumption taxation, and property taxation and compare the tax burdens and elasticities of each taxation. According to estimations of tax rate and tax base elasticities, it can be recommended that the tax bases of income and consumption taxation be broadened in both Japan and Korea. Finally, the framework of optimal taxation considering equity criteria was utilized in order to suggest some concrete policy implications. The result shows that high tax rate should be imposed on the items with a high share in the expenditures of the rich such as clothing and footwear, and education in Japan. Also high tax rates should be levied on items such as furniture and utensils, culture and recreation, and education in Korea. Contrary to this, low tax rates or subsidies should be placed on the items with a high share in the expenditures of the poor such as food and beverages, housing, fuel, light and water charges, and medical care in the two countries.