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Korea’s Unification Tax and Unification Cost

  • The Journal of Northeast Asia Research
  • Abbr : NEA
  • 2010, 25(1), pp.47-76
  • DOI : 10.18013/jnar.2010.25.1.003
  • Publisher : The Institute for Northeast Asia Research
  • Research Area : Social Science > Political Science > International Politics > International Relations / Cooperation

Kang-nyeong Kim 1

1조화정치연구원

Candidate

ABSTRACT

The International environment that caused the division in the past has now remarkably changed. To Koreans unification is no longer a matter of sentiment; it has become a task to be carried out in the present reality. This paper is aimed at analysing Korea’s unification tax and unification cost. President Lee Myung-bak in a nationally televised speech on Sunday marking the 65th Liberation Day urged South Koreans to prepare for reunification with North Korea. Lee proposed a “three-stage plan” for reunification along with a “unification tax system” aimed at raising money for the costs of integration. "Reunification will happen. It is therefore our duty to start thinking about real and substantive ways to prepare for reunification such as the adoption of a unification tax," Lee said. President Lee Myung-bak’s surprise proposal Sunday for the “unification tax” has sparked a heated debate among politicians, highlighting a wide ideological rift between the liberal and conservative forces as to how to deal with the communist North Korea. We could learn many lessons from Germany's unification. In Germany, the East-West economic disparity was not quite as wide as the North-South gap in Korea. Still, West Germany spent 400 billion Deutschmarks($226 billion as of 1989) before the Berlin Wall fell in 1989 and poured 2 trillion euro($2.55 trillion) between 1990 and 2009 to cover unification costs. The Presidential Council for Future and Vision predicted that $2,140 billion (2,525 trillion won) will be required for the next 30 years to raise the living standards of the 24 million Northerners to the Southern level after an abrupt unification. However, the figures could go down to $322 billion if the nation is unified after the Northern economy is normalized through gradual opening. Defense tax was first adopted in 1975 and funded major defense buildup projects until a 1990-phase out. Value-added tax is another probable specific economists name despite the cautious approach taken by the government. It is now time that we start considering the matter as part of preparations for reunification, which will happen eventually. Time has come to prepare realistic measures in anticipation of the day of unification, such as a unification tax. North Korea’s economy is about 38 times smaller than South Korea’s and 18 times smaller on a per-capita basis. Therefore we need to have national level insurance to secure financial resources to pay for the unification process, not just for the North Korean residents but for ourselves and future generations of Koreans.

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