The NABO Tax-Benefit Analysis Model

Published on June 30, 2022
Published by Tax Policy Analysis1 Division

   This report established the “NABO tax-benefit analysis model” to comprehensively measure the degree of burden and benefit of households stemming from tax and fiscal policies, followed by analyzing the effect of income redistribution, which is one of the important roles of tax and fiscal policies.
   The model measured the tax burden in direct and indirect taxation, and social security contributions, as well as benefits in cash and in-kind transfers by household, after which the results were allocated to original household income. This way, from market income to final income, income levels that have taken into account the effect of taxation and fiscal policies will be analyzed in phases.
   In particular, the report estimated the impact on tax and fiscal policies, which is difficult to assess with household survey data alone by adding a measurement model for value-added taxes and public transfers of in-kind income. Furthermore, although income taxes are included in the household survey data, a measurement model for income taxes has been added, which can be helpful when analyzing tax lawamendments, etc. In this report, the 13th fiscal panel survey (imputed income for 2019) was used for analysis, and the household income decile used in the income redistribution analysis was divided based on adjusted private income, which is private income plus public pension income.
   The distribution of household income by income decile using the model indicates that the tax burden increased commensurate with higher income levels, and fiscal benefits decreased to the third decile before rising from the fourth decile. Accordingly, the net benefit, which subtracted tax burden from the fiscal benefits, showed a positive value up to the fifth decile before switching to a negative value (net burden) at the sixth decile. The fact that the amount of net benefit decreased with the increased income decile suggests that the effect of income redistribution occurred as a result of tax and fiscal policies. When household income adjustments ('equivalized income') were made for comparison between households with different household members, although the overall net benefit distribution was similar to the household income without adjustment, the gap between income deciles became somewhat smaller due to the adjusted effect on the system in line with the number of household members, affecting medical and educational benefits. In addition, the Gini coefficient by income level also displayed a gradual decrease from market income to final income, and the higher income decile share ratio compared to that of its lower counterpart declined from market income to final income, leading to income inequality improvements as well. However, these analysis results need to be interpreted in consideration of the premises, including limitations in measurement methodologies and sample data for each system in the model, and assumptions of factors other than policy changes.