Corruption and Growth: How Korea was able to make corruption less harmful
By international standards, Korea has long exhibited relatively high levels of corruption. Even in the 1990s, when Korea had already achieved substantial economic development, some transparency indicators placed Korea at levels comparable to those of countries such as Tanzania. Yet Korea managed to sustain rapid economic growth, a phenomenon that cannot be fully explained by the traditional Grease Theory. Using novel measures of corruption based on quasi-tax payments made by private firms, we explore how the close relationship between government and business contributed to the expansion of corporate tax bases.
Fiscal Autonomy and Corruption: Evidence from South Korea
Forthcoming, 2026.
Fiscal autonomy constitutes a critical dimension in analyzing corruption in a cross-sectional context. Previous studies suggest that a mismatch between revenue generation and expenditure responsibilities may undermine the anti-corruption benefits of decentralization, such as interjurisdictional competition and enhanced accountability. In this paper, we examine the role of fiscal autonomy in deterring corruption at the ministerial level of the central government, a topic that has received little attention in the empirical literature. Combining South Korean data on public officials convicted of corruption with information on the characteristics of special funds administered by individual ministries, we find that a higher share of earmarked revenues and greater flexibility in expenditure adjustment are associated with lower levels of corruption. These findings suggest that fiscal autonomy can serve as an important institutional mechanism for curbing corruption, even within highly centralized governmental systems.
The Effects of Quasi-taxes and Entertainment Costs on Firm Growth in Korea
Joosung Jun
Using externally audited nonfinancial firm data for the period 1985~2007, this paper shows that quasi-tax burden such as entertainment expenses and contributions can increase firm sales growth. This implies that unlike corporate income tax which typically figures in the cost side of firm operation, quasi-taxes need to be evaluated in terms of net-of-benefit costs. In addition, this paper shows that non-business related transactions in entertainment expenses have positive effects on firm growth. These results are more pronounced in small and medium-sized firms as well as those firms with entertainment costs exceeding deduction limits. (an updated version is forthcoming..)
Key Words: corporate taxes, entertainment costs, quasi-taxes, firm growth
Tax Evasion and Firm Value: The Role of Corporate Governance
Joosung Jun
Korean Journal of Public Finance, 2011
Abstract
Using publicly listed nonfinancial firm data for the period 1994-2007, this paper shows that corporate governance can be a critical factor in determining the effects of tax avoidance on the firm value. Contrary to conventional wisdom, corporate tax avoidance negatively affected the market value of firm under ‘bad governance’ represented by the dominating presence of the controlling shareholder. Under good governance represented by a higher presence of institutional investors, however, mangers appeared to act in the interests of shareholders. In addition, the investors appeared to consider the permanent component of the difference between book and taxable income, the tax avoidance proxy used in this study, as the main ingredient for rent diversion by owner-managers. These results are robust across various estimation specification.
Key Words: tax avoidance, corporate governance, firm value
Corruption and Growth: How Korea was able to make corruption less harmful
By international standards, Korea has long exhibited relatively high levels of corruption. Even in the 1990s, when Korea had already achieved substantial economic development, some transparency indicators placed Korea at levels comparable to those of countries such as Tanzania. Yet Korea managed to sustain rapid economic growth, a phenomenon that cannot be fully explained by the traditional Grease Theory. Using novel measures of corruption based on quasi-tax payments made by private firms, we explore how the close relationship between government and business contributed to the expansion of corporate tax bases.
Fiscal Autonomy and Corruption: Evidence from South Korea
Forthcoming, 2026.
Fiscal autonomy constitutes a critical dimension in analyzing corruption in a cross-sectional context. Previous studies suggest that a mismatch between revenue generation and expenditure responsibilities may undermine the anti-corruption benefits of decentralization, such as interjurisdictional competition and enhanced accountability. In this paper, we examine the role of fiscal autonomy in deterring corruption at the ministerial level of the central government, a topic that has received little attention in the empirical literature. Combining South Korean data on public officials convicted of corruption with information on the characteristics of special funds administered by individual ministries, we find that a higher share of earmarked revenues and greater flexibility in expenditure adjustment are associated with lower levels of corruption. These findings suggest that fiscal autonomy can serve as an important institutional mechanism for curbing corruption, even within highly centralized governmental systems.
The Effects of Quasi-taxes and Entertainment Costs on Firm Growth in Korea
Joosung Jun
Using externally audited nonfinancial firm data for the period 1985~2007, this paper shows that quasi-tax burden such as entertainment expenses and contributions can increase firm sales growth. This implies that unlike corporate income tax which typically figures in the cost side of firm operation, quasi-taxes need to be evaluated in terms of net-of-benefit costs. In addition, this paper shows that non-business related transactions in entertainment expenses have positive effects on firm growth. These results are more pronounced in small and medium-sized firms as well as those firms with entertainment costs exceeding deduction limits. (an updated version is forthcoming..)
Key Words: corporate taxes, entertainment costs, quasi-taxes, firm growth
Tax Evasion and Firm Value: The Role of Corporate Governance
Joosung Jun
Korean Journal of Public Finance, 2011
Abstract
Using publicly listed nonfinancial firm data for the period 1994-2007, this paper shows that corporate governance can be a critical factor in determining the effects of tax avoidance on the firm value. Contrary to conventional wisdom, corporate tax avoidance negatively affected the market value of firm under ‘bad governance’ represented by the dominating presence of the controlling shareholder. Under good governance represented by a higher presence of institutional investors, however, mangers appeared to act in the interests of shareholders. In addition, the investors appeared to consider the permanent component of the difference between book and taxable income, the tax avoidance proxy used in this study, as the main ingredient for rent diversion by owner-managers. These results are robust across various estimation specification.
Key Words: tax avoidance, corporate governance, firm value