Korea Institute of Public Finance
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소득재분배정책을 위한 동등화 지수 연구
- 소득불평등도, 소득세, 최소생계비
- 소득재분배정책을 위한 동등화 지수 연구
- 김우철; 민희철; 박상원
- Issue Date
- pp. 15
- In this study, we provide household equivalence scales based on alternative methods and investigate the implication on the minimum cost of living, the income tax system, and household income inequality. The report includes four main chapters. Chapter II reviews the previous literature, discusses the definition of equivalence scales, and presents a summary of various estimation methods available so far. Chapter III, using the Household Income and Expenditure Survey, estimates and compares alternative equivalence scales according to the expenditure ratio approach, the Engel approach, and the demand function approach, etc. In chapter IV, we compare the average effective (income) tax rates for each household type in light of equivalence scales. Chapter V examines the Gini coefficients of household incomes adjusted for equivalences scales.
In Chapter III, we first compare the expenditure level or ratio of hypothetical households whose income rankings within each household type are similar. The incremental expenditure turns out to decrease as an additional kid is added to the household while the incremental expenditure rises with more adults. We also find that according to the Engel approach and the demand function approach, the square-root N-rule - the simplest form of equivalence scales - underestimates the economy of scale coming from additional children, because the square root N-rule assumes a wrong scales elasticity ignoring the differences between adults and children. The equivalence scale currently used in the national basic livelihood security system also has a similar problem. We expect the adoption of an Modified OECD scale, which sets the additional cost of a kid to be 60% of an additional adult's, to improve on the current income security system.
Chapter IV examines the ratios of before-tax incomes, at which the average effective tax rates are the same across household types. We suggest that the ratios can be interpreted as equivalence scales implied by the income tax system. We find that the income-tax-system-implied equivalence scales are generally much closer to 1 than the other scales, meaning the necessary expenditure does not change much for different household types under the income-tax-system-implied scales. Since the income tax system is not solely responsible for adjusting welfare levels across households, it would be desirable to examine whether the income tax system is consistent with the other redistribution policies rather than to evaluate the absolute level of exemption. The second finding is, the income tax system favors a household with more children than a household with more adults, while the opposite is the case with the other equivalence scales. Finally, we analyze various scenarios allowing different exemption rules.
Chapter V analyzes the effect of the tax and the government transfer on the income inequality among working households using alternative equivalence scales. The impact of the tax and the government transfer is not found to vary much with the choice of equivalence scales. However, equivalence scales have significant consequences for the relative ranks of households. In addition, we decompose the Gini coefficients into the one between household types and the one within household types, and find that the within-group inequality is much more important than the between-group inequality, which sheds light on the effectiveness of the between-group redistribution policies.
- 소득불평등도, 소득세, 최소생계비
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