S. Korea ranks 28th out of 29 OECD nations in tax-and-welfare redistribution

South Korea's income redistribution through its tax and welfare systems ranks near the bottom among OECD member states, according to the latest data.

Experts warned that as "K-shaped polarization" risks becoming entrenched, the country cannot afford to neglect stronger support for low-income households.

According to OECD income distribution statistics, South Korea's Gini coefficient improvement rate — the gap between pre-tax market income and post-tax disposable income — stood at 17.6 percent in 2023, the most recent year available, ranking 28th out of 29 OECD countries for which data were published.

That figure is roughly half the 29-country average of 34.4 percent. Only Costa Rica, at 12.1 percent, ranked lower.

Even when Bulgaria, Croatia and Romania — non-members whose data the OECD also publishes — are included, South Korea placed 31st out of 32 countries.

The Gini coefficient is an economic indicator of income inequality, where 0 represents perfect equality and 1 represents perfect inequality.

The improvement rate is calculated by comparing the Gini coefficient for market income before taxes with that for disposable income after taxes, pensions and welfare transfers are applied.

A striking feature of South Korea's data is the dramatic reversal in rankings between the pre-tax and post-tax measures.

South Korea's market income Gini coefficient in 2023 was 0.392, while its disposable income Gini coefficient was 0.323.

The market income figure was the most equal among all countries surveyed, but once taxes were deducted and pensions and benefits added, the disposable income ranking fell to 22nd.

Slovakia topped the 2023 improvement rate rankings at 48.3 percent, reducing its market income Gini coefficient from 0.413 to 0.213.

European countries dominated the upper tier: Belgium at 47.7 percent, Finland at 47.2 percent, the Czech Republic at 43.5 percent, Slovenia at 42.4 percent and France at 42.2 percent. The United Kingdom ranked 22nd at 29.7 percent, while the United States placed 26th at 22.1 percent.

"It means the role of income redistribution through the tax system and other mechanisms is insufficient compared with other countries," said Kim Kwang-seok, head of the economics research division at the Korea Economic and Industrial Research Institute.

South Korea's low ranking appears to be hardening. Its position slipped from 23rd out of 26 countries in 2011, to 31st out of 33 in 2018, to 28th out of 29 in 2023.

The improvement rate itself rose from 11.6 percent in 2015 to 19.0 percent in 2020, but the country's relative ranking changed little.

The most recent domestic data show little change. The 2024 improvement rate based on the Ministry of Statistics' Household Finance and Welfare Survey came in at 18.5 percent, a slight improvement from 17.6 percent in 2023.

That modest gain, however, reflects the fact that the market income Gini coefficient worsened from 0.392 to 0.399, while the disposable income Gini coefficient rose by less — from 0.323 to 0.325.

The redistributive effect of taxes and welfare is even weaker for older Koreans.

The improvement rate for those aged 18 to 65 was 13.7 percent, ranking 27th among 29 member countries, while for those 66 and older it was 29.6 percent, ranking 28th.

The OECD averages were 24.8 percent and 57.1 percent, respectively. South Korea's gap with the OECD average was 11.1 percentage points for the working-age group but reached 27.4 percentage points for those 66 and older.

The dramatic reversal between pre-tax and post-tax rankings noted earlier was also most pronounced among older Koreans.

South Korea's market income Gini coefficient for those 66 and older stood at 0.540, second only to Switzerland at 0.519. But the disposable income Gini coefficient of 0.380 placed the country 27th — a drop of 25 places. That decline was the steepest among all 29 countries.

Moreover, the absolute reduction in the Gini coefficient from market income to disposable income was just 0.160 for this age group — only 38 percent of the OECD average of 0.420 — the worst performance among the 29 countries.

By contrast, Austria's market income Gini coefficient for those 66 and older was 0.871, the most unequal among the 29 countries, but taxes and welfare brought it down to 0.306 — a more equal outcome than South Korea's. Belgium saw a reduction from 0.870 to 0.222, and the Czech Republic from 0.833 to 0.200.

Analysts attribute the difference to structural factors: in Europe, retirees have virtually no market income and rely instead on public pensions as their primary income source, whereas in South Korea many older people continue working.

South Korea's economy has recently entered an expansionary phase on the back of strong semiconductor exports, but concerns about deepening polarization persist, and high interest rates may further increase the debt-servicing burden on financially vulnerable borrowers.

"South Korea's market income distribution is relatively equitable," said Kang Sung-jin, a professor of economics at Korea University. "The problem is that the government's social safety net and pension system are not well targeted at those who need them most."

He added that universal welfare programs had been introduced too quickly, leaving targeted and selective welfare relatively underdeveloped. "To address polarization, it is necessary for now to strengthen targeted welfare that identifies and supports low-income households," he said.

Kim Kwang-seok also called for action, saying public transfer income needs to be fundamentally reinforced and that vulnerable groups who fall below the basic living standard require a stronger safety net.