Capital Taxation in Japan and South Korea (1990s–2010s):Similar Outcomes, Different Trajectories

ABSTRACT

This article examines the trajectories of capital tax policies in Japan and South Korea over recent decades. Historically, the two countries present an ideal case for studying fiscal developmentalism in East Asia. Total taxation was low, although capital owners assumed higher tax burdens than workers and consumers. From the 1990s to 2010s, both countries underwent a series of market-oriented tax reforms. A large body of political economy literature contends that the tax structures of these countries became increasingly neo-liberal during this period. Cuts in capital taxes were the primary focus of such changes. This article seeks to review this interpretation of the capital tax policies of Japan and South Korea. Through an examination of statutory and effective tax rate data, it confirms that no “race-to-the-bottom” cutbacks happened to capital taxation in these countries. Despite sharing this common ground, however, Japan’s approach constitutes a more regressive case of capital tax adjustment than South Korea’s. The author elucidates the reasons behind this difference by employing a revised partisan theory of capital taxation. The empirical analysis demonstrates the validity of this claim by examining eight cases of partisan governments in Japan and South Korea from the 1990s to the 2010s.

KEY WORDS:

• Capital taxation
• average effective tax rate (AETR)
• government partisanship
• Japan
• South Korea

Acknowledgements

This work was supported by the Laboratory Program for Korean Studies through the Ministry of Education of the Republic of Korea and the Korean Studies Promotion Service of the Academy of Korean Studies (AKS-2018-LAB-1250002). The author would like to thank the anonymous reviewers, as well as the editor of the Journal, for their thoughtful feedback on the earlier draft of this article.

Notes

1. The analysis does not include the LDP government led by Abe since 2013 because the implementation of its policy is ongoing and the tax data (ending in 2015) do not provide sufficient coverage for an adequate analysis.

2. In the tables, the figures in parentheses represent the differences in the averages between the first LDP government and the preceding socialist-LDP government. Considering that the latter was short-lived – July 1994 to January 1996 – the reference figures were extracted from the year 1995.

3. The preceding conservative government was in place from February 1993 to February 1998. Because there are missing data, the AETR averages for this government were calculated using the data from 1995 to 1997.

Additional information

Funding

The Laboratory Program for Korean Studies through the Ministry of Education of the Republic of Korea and the Korean Studies Promotion Service of the Academy of Korean Studies AKS-2018-LAB-1250002.