Friday, August 28, 2009

The Financial Cost of Uniting North and South Korea

In a report on the effects of inter-Korean economic integration, the Korea Institute of Public Finance said if North and South Korea were to be unified in 2011, it would be possible to secure financial sustainability if the tax burden ratio was raised by about 2 percentage points for 60 years after unification.

South Korea's stood at 20.8 percent in 2008, so if unification should take place in 2011, it would be necessary to raise the ratio to about 23 percent to prevent financial failure, the report projects. That translates into about 10 percent more tax for 60 years.

The burden would be caused by the income gap between South and North Korea. The income of South Koreans was 7.4 times higher than that of North Koreans in 1992, but the gap grew to 17 times by 2007.

If South Korea's birthrate remains low and the two Koreas should be unified quickly, South Korea's ratio of population compared to North Korea will shrink and the South would bear a heavier financial burden for unification, the report predicts.

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