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OECD Economic Surveys: Korea 2007

image of OECD Economic Surveys: Korea 2007

This 2007 edition of OECD's periodic Economic Survey of Korea examines key economic challenges now being faced there. After an examination of recent macroeconomic trends, it looks at monetary policy, housing and regional policies, the fiscal situation and public spending in the context of rapid population ageing, and enhancing the globalisation of Korea.

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The fiscal situation in Korea

Korea currently has a sound fiscal position and a relatively low level of public spending. Given the impact of rapid population ageing on public expenditures in the long run and the potential cost of economic integration with North Korea, it is important to maintain a strong financial position. Slowing the growth of public outlays from its 9% pace since 2002 would help achieve the target of a balanced budget in the medium term. Reforming the tax system is necessary to generate additional revenue and to remove the cost of distortions as tax rates rise to cope with spending pressure. The personal income tax system should be improved by reducing generous exemptions and allowances that exclude more than half of wage income from the tax system. In addition, the corporate income tax base should be broadened by eliminating incentives that distort the allocation of investment and complicate tax administration.

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