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KMID : 1124020170330030169
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Korean Social Security Studies
2017 Volume.33 No. 3 p.169 ~ p.192
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Impact of Income Redistribution on Consumption Expansion
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Jeong Se-Eun
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Abstract
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Korean economy has suffered from slower growth and deepening income inequality since the 1997 financial crisis. This phenomenon is not only the symptoms of Korean economy but also of advanced economies as a whole. In this background, especially after the 2008 global financial crisis, the argument that strengthened distribution policy would figure out inequality problem as well as stagnant economic activity has gained popularity among economists and policy makers. The relations between distribution and growth is a long-lasting controversial issue and studies on that issue have not been a few. While traditional studies in favor of strong redistribution policy has focused on human capital accumulation and social cohesion effect, the Post-Keynesian argues the increase in the labor income share expands the consumption more that reduces the investment. This paper inspired by this argument estimates the impact on consumption and Gini coefficient of government income redistribution policy, using marginal propensity to consume by ten income classes for the year of 2015. But these effects will depend on the detailed design of tax and welfare reform policy. From the comparison of tax and welfare policies of major advanced countries, we put forward a desirable redistribution policy for Korean economy: welfare expenditure size would be nearly twice as much as the current one, and the welfare benefit would be distributed so that low-income households would have larger benefit and on the part of income tax policy, tax burden is designed to be distributed in the proportion to their income across households. As a result of this policy, the consumption of total households would increase by 1.62 percent and Gini-coefficient would decrease by 0.0565.
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KEYWORD
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Income redistribution, MPC, consumption function
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