Has Eearned Income Tax Credits (EITC) in Korea Relieved Social Exclusion?

Background: Over the past three decades, the income gap in Korea has rapidly deteriorated, resulting in a consistent increase in the low-income class due to low-wage labor and job insecurity. To alleviate the income gap and reduce poverty, the Korean government implemented Earned Income Tax Credits (EITC) in 2009. The EITC is a tax credit designed to provide financial assistance to low- and moderate-income workers and families. As the EITC expansion was embedded in 2019 and gained importance, its impact on labor supply and labor incentives has been extensively studied in Korea. However, its effects on individuals have yet to be researched. Empirical work has started to shift the focus from traditional economic outcomes to potential impacts on health, subjective well-being, and living arrangements. Given the growing interest in the impact of EITC on multidimensional poverty, it is necessary to examine the effects of EITC on social exclusion. Thus, this study explores whether EITC has implications for social exclusion.

Methods: We utilized the difference-in-differences (DiD) approach to compare the pre-and post-expansion. For this study, we used the Korea Welfare Panel Study (KWPS) from 2018 to 2019, which is a large national household panel survey. A sample of 1,798 adults was generated using propensity score matching (PSM). Social exclusion was divided into five dimensions, economic exclusion, employment exclusion, health exclusion, personal relation exclusion, and social contribution exclusion. Each dimension of social exclusion was measured by totaling scores of objective and subjective indicators. For example, economic exclusion was composed of household income and satisfaction with it. Finally, social exclusion was the sum of the scores of the five dimensions.

Results: The EITC program was found to be associated with social exclusion, economic exclusion, employment exclusion, health exclusion, and exclusion of personal relations. The implementation of the EITC program was associated with a reduction in social exclusion in the treatment group compared to the control group (Coeff. = -1.070, p<0.01). The impact of the EITC program on economic exclusion (Coeff. = -0.233, p<0.01) and employment exclusion (Coeff. = -0.270, p<0.01) was also significant. EITC recipients experienced less exclusion related to health (Coeff. = -0.274, p<0.05) and personal relations (Coeff. = -0.306, p<0.05). However, the coefficient of exclusion of social contribution was found to be insignificant.

Conclusions and Implications: This study found that the EITC program was associated with several dimensions of social exclusion, including economic exclusion, employment exclusion, health exclusion, and exclusion of personal relations. These findings suggest that the EITC program can be an effective policy tool in reducing multiple dimensions of social exclusion, particularly in the areas of health and personal relations. These results showed that expanding the EITC helped not only improve poverty and unemployment but also have positive effects on the overall life of the low-income class. According to this study, we can expect that the level of social exclusion of many working poor can be reduced as the EITC program expands.