The Korean Journal of Economic Studies
The Redistribution Effects of National Pension in Korea
Youngjae Lee (The Bank of Korea), Jong-Suk Han (Korea Institute of Public Finance), Jay H. Hong (Seoul National University)Year 2019Vol. 67No. 3
We quantitatively analyze the redistribution effect of the National PensionReform in Korea that increases replacement rate and contribution rate. Theincome tax financing is explicitly incorporated when the National Pension goesinto deficit. Using a heterogeneous agent life-cycle model calibrated under thecurrent population structure and pension system, we examine the redistributioneffects of the reform under an aging economy. The reform reduces thecross-sectional income inequality, measured by the Gini coefficient, because oflarger income transfers to the elderly. However, the life-cycle inequality,measured by the rate of return on net tax and transfer including nationalpension across the life-time income quintile, gets worsen due to a reduction inbasic pension transfer for the elderly poor under the reform.