Supply-side economics in the Republic of Korea
Son, Hyung Chan.
Henderson, David R.
Matthews, Danny G.
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This thesis investigates in detail the effects of Reaganomics South Korean style. The study describes Korea's tax system and attempts to measure the effect of changes of the Korean tax rate on total tax revenues. The main findings are as follows: (1) Lowering marginal tax rates contributed to income growth and increased tax revenues for people with income above ten million won in 1985 won. This evidence suggests that this group of Korean taxpayers was in the prohibitive region of the Laffer curve. (2) However, with the first installment of the tax cut in 1982, tax revenues fell with the fall in tax rate for taxpayers with incomes above 65 million won. This result makes sense because the taxpayers knew the 1984 tax cut was coming. Income could have been deferred from 1982 and 1983 into 1984 by taxpayers having the flexibility to do so. Conversely, the reduction in tax rate in 1984 caused a rise in tax revenue for this high income group. This evidence is also strikingly suggestive that these highest-income Korean taxpayers were previously in the prohibitive region of the Laffer curve.
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