Controversy Over the Trickledown Effect... Ministry of Economy and Finance Says "Corporate Tax Cuts Lead to Increased Investment and Employment"

"Lowering Corporate Tax Rates Benefits Shareholders, Consumers, and Workers Equally"
KDI and Korea Institute of Public Finance Present Research Results Emphasizing the Effects of Corporate Tax Cuts

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] The government has actively rebutted criticisms that the core of the tax reform plan, the corporate tax cut, lacks effectiveness, stating that the effects of increased investment and employment have been confirmed.

According to related ministries on the 24th, the Ministry of Economy and Finance recently released a press briefing stating, "The expected effects of corporate tax cuts on investment and employment are shown in various empirical research results."

The effective corporate tax rate has been continuously rising, reaching 18.1% in 2021, up 0.6 percentage points from the previous year (17.5%). It rose from 16% in 2013, 16.1% in 2015, 17.2% in 2017, to 19.1% in 2019, then temporarily dropped to 17.5% in 2020, but turned upward again last year.

The Ministry of Economy and Finance stated, "Considering that corporate tax revenue is expected to exceed 100 trillion won this year, the effective corporate tax rate will rise further." It added, "The effects of corporate tax rate cuts benefit society as a whole," explaining that "the benefits of corporate tax rate cuts generally flow to shareholders through dividends, to consumers through lower product prices, and to workers through increased employment and wages, as shown in other research results."

The Ministry also presented specific research results analyzing the effects of corporate tax cuts on investment and employment. According to a 2016 study by the Korea Development Institute (KDI), a 1 percentage point decrease in the average effective corporate tax rate increases the investment rate by 0.2 percentage points. A 2017 report by the Korea Institute of Public Finance showed that a 3 percentage point increase in the corporate tax rate reduces investment and employment by 0.7% and 0.2%, respectively, and decreases Gross Domestic Product (GDP) by 0.3%.

The new government has shifted the direction of economic policy from the previous administration's "public-led growth" to "private-led growth," and the corporate tax cut introduced this time is one of the policies that clearly reflect the government's economic policy stance. As criticisms grow, mainly from opposition parties, that the benefits go only to large corporations and that there is no trickle-down effect, the government is actively rebutting these claims.

A Ministry of Economy and Finance official emphasized, "In the context of focusing policy capabilities on stabilizing livelihoods and restoring economic vitality, the tax reform plan announced this time includes not only corporate tax rate cuts but also expanded tax credits and strengthened incentives for the inflow of excellent foreign talent," adding, "If these measures are implemented, companies' investment capacity will increase, leading to growth in investment and employment, and economic vitality is expected to be enhanced."

This content was produced with the assistance of AI translation services.