"Income Tax on Wealth More Helpful for Reducing Inequality Than Basic Income"

The Korean Association of Public Finance Academic Conference on the 29th-30th
"Moon Administration's Rapidly Increasing National Debt Negatively Affects Economic Growth"

Former Gyeonggi Province Governor and Democratic Party presidential candidate Lee Jae-myung holds a press conference announcing his mid-term resignation from the governor position at the Gyeonggi Provincial Government Office in Suwon, Gyeonggi Province, on the 25th. Photo by National Assembly Press Photographers Group

[Sejong=Asia Economy Reporter Moon Chaeseok] A study has found that a wealth income tax providing differentiated welfare according to income is more effective in reducing inequality than a universal basic income that gives a fixed amount to all citizens. Another study also revealed that the national debt, which has surged under the current government, has a significant negative impact on long-term economic growth. The basic income is a pledge of Lee Jae-myung, the ruling party’s presidential candidate and former governor of Gyeonggi Province. Ahead of next year’s presidential election, these findings are expected to be used as theoretical grounds in the debate over basic income and expansionary fiscal policy.

According to academia on the 28th, the Korean Association of Public Finance will hold its autumn regular academic conference on the 29th and 30th. Nam Sang-ho, honorary research fellow at the Korea Institute for Health and Social Affairs, plans to present a paper titled “Economic Consequences of Introducing a Basic Income System,” stating that a wealth income tax is more effective in reducing income disparity than universal basic income. Under the premise of “collecting 60 trillion won in income tax and paying 100,000 won per person for 12 months,” Nam compared scenarios of collecting income tax from all income deciles versus collecting income tax from the top 50% of the income deciles and distributing it to the bottom 50% (wealth income tax). As a result, the Gini coefficient, which ranges from 0 to 1 and indicates more equal income distribution the closer it is to 0, decreased only by 0.03 from 0.34 to 0.31 in the basic income case. In contrast, the wealth income tax lowered the Gini coefficient by 0.06. Nam also evaluated another scenario where income tax is collected from all deciles but distributed only to the bottom 70%, which lowered the Gini coefficient by 0.05, concluding it was more effective for income distribution than basic income.

This is expected to serve as a basis for criticizing presidential candidate Lee Jae-myung’s basic income plan. Lee’s basic income proposal centers on universal payments of 250,000 won per person annually until 2023, and 1 million won per person annually thereafter. In a phone interview with Asia Economy, Nam said, “From the perspective of distribution and inequality, the policy effect of selective payment scenarios is somewhat higher,” adding, “When discussing basic income policies, it is necessary to derive specific evidence and research methodologies considering economic growth and employment as well.”

Separately, Kim Sung-soon, honorary professor at Dankook University, presented a paper titled “Analysis of the Effects of National Debt on Economic Growth,” arguing that government spending expansion has a significant negative impact on long-term national economic growth. Based on annual data from 1980 to 2020 from Statistics Korea and the Bank of Korea, including per capita real GDP, government and private consumption and investment expenditures relative to GDP, and inflation rates, Kim analyzed their effects on economic growth. The results showed that in the short term, the estimated coefficient of government consumption expenditure was 4.23, indicating a strong positive effect on economic growth. National debt (0.66) also had a positive effect.

However, in the long term, national debt (-1.16) was found to have the strongest negative impact on economic growth. Government investment expenditure (-1.40) and inflation (-0.22) also negatively affected economic growth. Kim advised, “The results show that while national debt may positively affect economic growth in the short term, it acts as the largest negative factor in the long term,” adding, “National debt should be sensitively considered as the most important policy factor determining economic growth.”

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