ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of the Earned Income Tax Credit(EITC) on Tax Consciousness－Focusing on the Financial Panel Data－

  • Yong-Soo Kim Soongsil University
  • Hee Chun Roh Soongsil University

Asian Tax Journal Vol. 21 No. 6 (2020), pp. 9-32

Abstract

The Earned Income Tax Credit(EITC) is a work－linked income support system that has been in effect since 2008 to enhance the willingness of low－income workers to work and support their actual income. This study was empirical analysis using the financial panel data of the Korea Institute of Public Finance on whether the labor incentive tax system has a positive effect on the tax compliance by enhancing the tax consciousness of workers in households that received EITC compared to those who did not. In addition, additional analysis was made on whether the higher the amount of EITC and the higher the satisfaction level with the EITC amount and the payment procedure, the higher the tax consciousness. The main results of this study are as follows. First, there was a difference between the household members of the households receiving the EITC and the tax consciousness of the non－paid households. Household members who received EITC were found to have less benefits from the government compared to taxes paid by non－paid household members, to have a lower tax burden than taxpayers with similar economic abilities, and to be willing to pay more taxes if they raise taxes to expand welfare. These results are judged to be based on the perception that the benefits received from the EITC do not meet the expected level because the level of the supply and demand is lower than the current strict supply and demand standard for the EITC, although the households that received the work incentives are greatly affected by the loss of the taxes paid because they are low－income households. Second, according to an analysis of only those who received EITC, those who received more EITC recognized that they received more benefits from the government than those who received less. Third, according to an analysis of only those who receive EITC, those who are more satisfied with EITC are perceived to have a higher level of benefits from the government than those who are less satisfied with the EITC, and are willing to pay more taxes to increase welfare. This study has contributed to presenting the results of an empirical analysis to the tax administration participants, including tax authorities, taxpayers, and tax agents, that the EITC tax system not only achieves the original purpose of introduction, such as employment inducement effect and income redistribution, but also enhances the tax consciousness of the members of households in the households receiving the EITC.

Keywords

  • Earned Income Tax Credit(EITC)
  • Tax Consciousness
  • Tax Compliance

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