**Author details**

Ko Hyejin

to cut welfare spending thoughtlessly because many social problems should be addressed through collaborative social efforts, and it is also not a suitable alternative to increase welfare spending indefinitely while worsening fiscal space because this may over time dismantle the financial base of the welfare state. It is therefore important to seek ways to maintain welfare

As can be seen from the analysis results, the level of tax burden is an important aspect of fiscal sustainability in the welfare state. Tax revenue is the funded basis for maintaining the welfare state, so increasing tax compliance to offset the negative impact of increasing welfare spending will promote social cohesion. However, the national financial effort to maintain the welfare represents more than collecting additional taxes. The excessive burden does not always have a positive impact on fiscal sustainability, and it is not always possible for a country to collect more tax revenues to expand welfare. Thus, the most important aspect of total tax revenue that should be considered is the manner in which tax revenue is raised because depending on which method is adopted, the impact of taxation on the sustainability of economic, political, and social dimensions varies. As indicated in this study, it appears that securing tax fairness contributes to the fiscal sustainability of the welfare state. The following aspects of

the tax structure may positively contribute to fiscal sustainability of the welfare state.

consumption tax based on universal solidarity is one way to secure a wide tax base.

However, if we rely only upon the expansion of the consumption tax, it can place an excessive burden on the low-income class due to the regressive tax burden. Therefore, it is necessary to ensure sufficient welfare benefits for low-income people, along with progressive taxation, in order to relax the regressive burden and to narrow the gap between the consumption tax and the labor tax. Specifically, improving vertical equity may also result in a positive contribution to the fiscal sustainability of the welfare state and will secure the political legitimacy of the tax and mitigate the regressive burden that may result from the expansion of a consumption tax. In particular, it is worth noting that a progressive tax on high-income earners does not always cause tax evasion. For example, if the tax burden is in accordance with appropriate benefits that are provided by the state, a progressive tax increases tax compliance. Thus, broadening the tax base by means of the consumption tax must be done in a manner that allocates the fair burden to all citizens according to the ability to pay, which ultimately ensures the fiscal

First, in terms of the ability to pay principle, the achievement of equity between the tax base and improvements in progressivity may play a positive role in the fiscal sustainability of the welfare state. It appears obvious that the reduction of the gap between labor taxation and consumption taxation plays a significantly positive role in ensuring fiscal sustainability. Consumption tax may play a more positive role than taxation on labor in terms of social and political sustainability, as well as economic sustainability. In fact, advanced welfare countries have been interested in indirect taxation, including consumption tax, for which it is easy to secure public revenues in order to overcome the financial crisis, while it is difficult to secure tax revenue from direct taxes such as income tax and corporation tax, which are sensitive to economic changes [90–93]. In addition, it can contribute to the achievement of intergenerational equity by relieving elderly households, which are often more heavily burdened [94]. Moreover, in the event that the labor taxation base is broken due to labor market dualization and declining employment rates, a

spending while ensuring fiscal sustainability.

116 Taxes and Taxation Trends

sustainability of the welfare state.

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Social Welfare Research Center, Seoul National University, Seoul, Republic of Korea
