Hyeongsu Park Explores Tax Data & Confidentiality

Some of the most important socioeconomic truisms about a country can be revealed by examining the way its citizens pay their taxes according to MPP ’15 Yunjung Song and Harvard Law School J.D. ’15 Hyeongsu Park. For their Policy Analysis Exercise (PAE), the capstone project for Harvard Kennedy School MPP candidates, Song and Park delved into the complex issue of taxpayer data availability in South Korea.

Song and Park’s research was inspired in part by economist Thomas Piketty’s much-heralded Capital in the Twenty-First Century, which used publicly available taxpayer data collected from a number of different Western countries to argue that income inequality was an inherent feature (or flaw) of contemporary capitalism. Piketty’s thesis ignited worldwide discussion on income inequality, but in South Korea, the book led some to raise questions about why there was little data released on the country’s own taxpayers.

Song and Park analyzed alternatives to South Korea’s National Tax Service (NTS) policies regarding taxpayer data.  In 2011, NTS was sued by a taxpayer organization for failing to protect the identities of a prominent comedian and a well-known actress whom they were auditing. This incident highlighted taxpayers’ concerns regarding confidentiality, as well as the fear that additional breaches could shake taxpayers’ confidence in NTS and reduce tax compliance. Through their research, however, Song and Park found that some reports indicate tax compliance can be promoted more from tax transparency than confidentiality. “If taxpayers know that their tax returns would be seen by other people, then they might want to be seen as cooperative and reliable and responsible taxpayers, according to the reports.” said Song.

Song and Park worked to develop a solution that would strike a balance between the taxpayers’ and NTS’s interest in maintaining confidentiality, and the researchers’ interest in access to tax data. With support from the Ash Center, the pair travelled to South Korea to speak with officials at NTS in order to better understand their perspective on the issue. Song and Park also met with representatives from the Internal Revenue Service (IRS) in Washington, D.C. to research how the U.S.’s main tax agency handles issues of tax data disclosure. They interviewed Barry Johnson, director of the IRS’s Statistics of Income Division, the department in charge of collecting, managing, and administering statistical analysis of tax data.

Based on their interviews and research, and with the help of Harvard professors Rohini Pande and Stephen Shay, Song and Park came up with five different policy options that would allow tax data to be released for academic purposes. From these, they selected what they dubbed as the “research program model” to propose to NTS. The model would allow a small, select group of researchers access to the de-identified data for the purposes of tax administration or tax policy. Only once the raw data has been processed and analyzed would it be allowed to leave the room to be published, with the approval of the NTS.

Song and Park believe their research program model to be feasible at this moment for NTS to implement for a few reasons. First, the only costs to the NTS would be financing the equipment to set up the room and some administrative costs to select researchers, making it economically efficient. In addition, implementing and operating the model within the South Korean financial system would be possible with a small change to a provision within a Presidential Decree originally intended to allow tax data access for researchers at the Korea Institute of Public Finance (KIPF). “We can change the provision to include not only the KIPF researchers, but also other government researchers and private institutes, by modifying the definition of ‘research institute’ in the presidential decree,” said Park.

While Song and Park believe their model could be implemented within the current South Korean financial infrastructure, they realize that there are still issues to address on the topic of tax data, perhaps with future research. Areas for such research could examine questions like: Would disclosure of tax data improve or harm tax compliance? Also, how accurate is the tax data collected by the NTS? “We believe that in order to study the quality of data, NTS could allow researchers to access the tax data,” said Park.

Song and Park presented their research as part of the Ash Center’s weekly student speaker series last April. Their co-authored paper was published in Tax Notes International in September. Since graduating from Harvard, Park has been working as an associate lawyer at an intellectual property boutique law firm in San Diego. Song now works for NTS itself as a deputy director. “Both of us hope to find ways to further our research and ingrain it to reality in the field and academia,” added Song.