South Korea Population Crisis Linked to Historic Tax Rises
A new study suggests steep tax hikes five decades ago contributed to South Korea's sharp fertility decline, with authors saying the results of the research may hold lessons for policymakers today.
Newsweek reached out to the South Korean embassy in the U.S. with a written request for comment outside of office hours.
Why It Matters
South Korea's fertility rate has seem the fastest fall in the industrialized world, dropping from about 4.5 births per woman in 1970 to 0.72 in 2023, far below the 2.1 replacement rate needed to sustain a population. The country now has the world's lowest birth rate, a trend authorities consider a national emergency.
Despite more than $200 billion of pro-natal spending since 2006, South Korea's government has failed to reverse the trend. A rapidly aging workforce has exacerbated the demographic crunch, with those aged 65 and older now comprising one-fifth of the population.
What To Know
The study reviewed decades of South Korean tax policy. Its findings suggest the economic pressures these policies created still reverberate today.
The tax burden on Koreans was relatively low in the 1960s and early 70s, depending largely on industrial and trade taxes, the authors point out.
However, sweeping tax reforms between 1974 and 1976 increased direct taxation, with value-added tax (VAT)—a consumption tax applied at each stage of production and sale—rising to 20 percent from 10 percent, according to the paper.
The higher taxes were followed by a reduction in disposable incomes and a sharp drop in the number of births.
'The fertility rate in South Korea has fallen from 6 in 1950 to less than 1 in 2023, and the observed changes in fertility over time seem to align with the shifts in South Korea's tax policies,' co-author and Oxford University researcher Joan Madia wrote in a press release accompanying the study.
To support this, Madia referenced later tax reforms in the mid-1990s, which brought in lower rates across a broader base. These might explain the less pronounced fertility rate decline over the following few years.
The study accounted for other factors known to influence childbearing decisions, including female workforce participation, higher education rates among women and contraceptive use.
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