Taxes, Outward Orientation, and Growth Performance in Korea

Abstract

This paper both discusses and evaluates the role of tax policy in the Korean growth process from the early 1960s to the late 1980s. It begins by reviewing the evolution of Korean policy over this developmental sequence, emphasizing three distinct regime switches, and the tax policies which were part of them. It then presents an analytical framework for quantitative assessment of the contribution of tax policies to this growth through induced intersectoral resource transfers and impacts on effort and labour supply in agriculture and manufacturing sectors. What emerges from the model calculations is that tax policy has played a relatively modest role in Korean growth and that one should look outside of tax policy for the main factors underlying strong Korean growth.