Abstract
This study analyzes the effect of corporate income tax on income distribution in Korea. Studies on the economic effects of corporate income tax have mainly focused on investment and employment effects. This research trend is due to the prevailing idea that the investment effect of corporate income tax is decisive, employment and wages are determined incidentally, and that companies are merely conduits for distributing profits to shareholders. However, corporate income tax also affects the labor income share and household income distribution through changes in employment and wages, dividends, and internal reserve fund of a company. If corporate income tax cuts increase investment, but employment growth is weak and real wage growth rates falls short of labor productivity growth rates, the labor income share will decrease and household income inequality will widen. According to the results of the empirical research, the effects of corporate income tax rate on investment and employment are weak. The expanded investment is also capital-intensive, so the employment effect is not significant, and more the real wage increase does not keep up with labor productivity. As a result, a reduction in the effective corporate income tax rate lowers the labor income share and increases income inequality. Therefore, to increase the distribution effect of corporate income tax, corporate income tax should be reformed in a way that supports employment growth and real wage increases while including investment.
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