East Asian Strategies for Combating Income Inequality: A Comparative Analysis of Redistributive Fiscal Policy Efforts in China and Korea

Abstract

Abstract Both China and Korea face different stages of national income inequality as well as distinctive structures in their income distribution. However, not only do levels and structures of income inequality differ in China and Korea, but their measures to tackle income inequality inherently differ. This article investigates how the Chinese and Korean governments respond to income inequality in their countries by analysing fiscal policy on both the expenditure and taxation fronts. The findings show that both China and Korea have increased their redistributive efforts in the recent past; however, Korea’s commitment to tackling income inequality is stronger than that of China. Moreover, this article finds evidence for distinctive strategies for reducing income inequality in China and Korea. Responding to large income disparities at the bottom of the income distribution spectrum, the Chinese government tackles income inequality by supporting low income earners and reducing the tax burden for low income brackets. In contrast, given Korean income inequality can be largely explained by relatively large top income shares, the redistributive policy incorporates newly introduced social benefits excluding top income earners as well as income taxes aimed at the top of the income spectrum.