A Study on the Optimal EITC Program
Korea's public assistance system, represented by NBLS(National Basic livelihood Security), has disclosed critical problems despite the rapid increase in its budget, such as decreasing work incentive and deepening welfare trap. These typical problems of classical welfare system have been commonl...
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| Format: | Article |
| Language: | English |
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Korea Development Institute
2008-06-01
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| Series: | KDI Journal of Economic Policy |
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| Online Access: | https://doi.org/10.23895/kdijep.2008.30.1.131 |
| _version_ | 1819069919524814848 |
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| author | Yoo, Han wook |
| author_facet | Yoo, Han wook |
| author_sort | Yoo, Han wook |
| collection | DOAJ |
| description | Korea's public assistance system, represented by NBLS(National Basic livelihood Security), has disclosed critical problems despite the rapid increase in its budget, such as decreasing work incentive and deepening welfare trap. These typical problems of classical welfare system have been commonly witnessed in many other advanced countries. Therefore a number of efforts have been exerted to correct these problems by transferring the existing welfare system into a welfare-to-work(or workfare) system, and the most common one of such efforts is introducing the EITC(Earned Income Tax Credit)-type programs. They have already been implemented in many countries such as the USA, the UK and France, also Korean government decided to launch EITC program in 2009. This paper aims to propose some measures to improve Korean EITC program. For this, an optimization problem is constructed from the government's viewpoint. Optimal EITC program is defined to be a solution to the problem - a combination of phase-in rate, phase-out rate, and maximum credit that maximizes labor supply increase under a exogenously given budget constraint. Using a mechanism design analysis, we derive and characterize the optimal EITC program. Analysis results implies that Korean EITC structure needs to be modified so that phase-in rate is larger than phase-out rate and the upper limit of phase-out range becomes larger. Comparative static analysis results show that the feature of the optimal EITC program is sensitive to the change of income distribution, suggesting that if beneficiaries are categorized into different income groups, then it is desirable to apply distinctive EITC programs to each group. |
| first_indexed | 2024-12-21T16:57:41Z |
| format | Article |
| id | doaj.art-e37bb379e89a44ae9f3844e709dd9938 |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-12-21T16:57:41Z |
| publishDate | 2008-06-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-e37bb379e89a44ae9f3844e709dd99382022-12-21T18:56:43ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41302008-06-0130113117010.23895/kdijep.2008.30.1.131A Study on the Optimal EITC ProgramYoo, Han wook0Associate Research Fellow, Korea Development InstituteKorea's public assistance system, represented by NBLS(National Basic livelihood Security), has disclosed critical problems despite the rapid increase in its budget, such as decreasing work incentive and deepening welfare trap. These typical problems of classical welfare system have been commonly witnessed in many other advanced countries. Therefore a number of efforts have been exerted to correct these problems by transferring the existing welfare system into a welfare-to-work(or workfare) system, and the most common one of such efforts is introducing the EITC(Earned Income Tax Credit)-type programs. They have already been implemented in many countries such as the USA, the UK and France, also Korean government decided to launch EITC program in 2009. This paper aims to propose some measures to improve Korean EITC program. For this, an optimization problem is constructed from the government's viewpoint. Optimal EITC program is defined to be a solution to the problem - a combination of phase-in rate, phase-out rate, and maximum credit that maximizes labor supply increase under a exogenously given budget constraint. Using a mechanism design analysis, we derive and characterize the optimal EITC program. Analysis results implies that Korean EITC structure needs to be modified so that phase-in rate is larger than phase-out rate and the upper limit of phase-out range becomes larger. Comparative static analysis results show that the feature of the optimal EITC program is sensitive to the change of income distribution, suggesting that if beneficiaries are categorized into different income groups, then it is desirable to apply distinctive EITC programs to each group.https://doi.org/10.23895/kdijep.2008.30.1.131근로장려세제(EITS)노동공급(Labor Supply)최적화(Optimization) |
| spellingShingle | Yoo, Han wook A Study on the Optimal EITC Program KDI Journal of Economic Policy 근로장려세제(EITS) 노동공급(Labor Supply) 최적화(Optimization) |
| title | A Study on the Optimal EITC Program |
| title_full | A Study on the Optimal EITC Program |
| title_fullStr | A Study on the Optimal EITC Program |
| title_full_unstemmed | A Study on the Optimal EITC Program |
| title_short | A Study on the Optimal EITC Program |
| title_sort | study on the optimal eitc program |
| topic | 근로장려세제(EITS) 노동공급(Labor Supply) 최적화(Optimization) |
| url | https://doi.org/10.23895/kdijep.2008.30.1.131 |
| work_keys_str_mv | AT yoohanwook astudyontheoptimaleitcprogram AT yoohanwook studyontheoptimaleitcprogram |