SEOUL, Nov. 27 (Korea Bizwire) — Korea’s effect of taxes and social spending on poverty reduction turned out smallest among Organization for Economic Cooperation and Development member nations.
According to the 2014 Household Finance and Welfare Survey released on November 26, Korea’s poverty rate in 2013 was 18.9 percent in terms of market income and 16.4 percent in disposable income basis. The 2.5-percentage-point difference is considered the effect of poverty reduction efforts by the government.
The poverty rate here is defined as the percentage of those below 50 percent of the median household income adjusted for the number of household members. Although the poverty rate based on market income is 18.9 percent, it was reduced by 2.5 percentage points by the government’s income redistribution efforts. This is the lowest level among 33 OECD member countries.
For example, the market income-based poverty rate of Ireland was 41.4 percent in 2011 but it was reduced by as much as 31.7 percentage points to 9.7 percent in disposable income terms through the government’s taxation and welfare spending. As for France, the 35.0-percent market income-based poverty rate was reduced to 8.0 percent by 27.0 percentage points. Other European countries such as Finland (24.4%p), Germany (24.2%p), the Czech Republic (23.2%p), and Belgium (23.0%p) had about 10 times higher poverty reduction effect.
Even some other economies with similar or lower per-capita income than Korea such as Mexico (6.0%p), Chile (4.7%p), and Turkey (3.1%p) recorded much higher government policy’s poverty reduction effect than Korea’s.
Lee Joon-hyup, research fellow with Hyundai Economic Research Institute, said, “That’s largely because the income redistribution effect of the government’s fiscal policy is weak. The government needs to consider creating more jobs for low-income families while strengthening tax schemes like earned income tax credit.”
By Sean Chung (email@example.com)