ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Scenario Analysis of Joint Taxation Split forAddressing Low Birthrate Issues

  • Ye Ji Lee University of Seoul Graduate School of Taxation
  • Hyeongtae Cho School of Business Administration, College of Business Administration, Hongik University
  • Sang－kwon Cha Department of Global Culture and Management, Calvin University

Asian Tax Journal Vol. 25 No. 6 (2024), pp. 47-73

Abstract

The issue of low birth rates in our country has long been a serious social problem, and despite various governmental measures, it continues to worsen without any signs of improvement. In this context, there has been criticism that our country ranks low among major OECD member countries in terms of tax support related to children. Some have suggested that more proactive tax support policies should be implemented. One such proposal is to reconsider the individual－based taxation system, which is a principle of our income tax regime, and introduce a joint－splitting taxation system like that of Germany or France. This study conducts a scenario analysis, dividing households into single－earner and dual－earner households, to estimate the potential changes in tax burdens based on data from the National Tax Panel, assuming our country adopts such a joint－splitting taxation system. The analysis shows that under the current individual－based taxation system, the average calculated tax burden for single－earner households is higher than that for dual－earner households. In such a situation, introducing a couple－based taxation system, like in Germany, would likely result in a greater reduction in the calculated tax burden for single－earner households compared to dual－earner households. Moreover, the reduction rate in calculated tax burden appears to be higher in lower－income brackets, indicating that the tax benefits would not be limited to high－income earners. Even under a family－based taxation system, like in France, the reduction in the calculated tax burden for single－earner households was significant, with broader income ranges experiencing reductions compared to dual－earner households. Additionally, the larger the number of dependent children, the more pronounced the reduction effect, especially for single－earner households with three or more children, highlighting the importance of the incremental value of family coefficients. The reduction in tax burden for high－income earners was also notably larger in single－earner households. If joint－splitting taxation is introduced, these effects of tax burden reduction should be considered, along with potential issues such as the disruption of tax neutrality regarding marriage, fairness in taxation, and compliance costs for taxpayers. This study contributes by providing policy insights to policymakers through a preliminary analysis of how changes in the tax unit, as a measure to address the low birth rate, would affect tax burdens. However, the limitation of this study is that the analysis was confined to the extent of the reduction in calculated tax burdens, and it assumed that current income deductions would remain in place.

Keywords

  • Low Birth Rate
  • Individual－Based Taxation
  • Joint－Splitting Taxation
  • Couple－Based Taxation
  • Family－Based Taxation

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