Factors That Affect Taxpayers’ Tax Literacy
Authors:   Asia-Europe Perspective Association, Kang Min-Jo , Hue Kwang-Bok 
Published: December 2024

Proper determination of the characteristics of tax system requires a significant level of interest and knowledge in tax laws and tax policies. The question facing taxpayer’s subjective perceptions and beliefs about tax system is whether survey respondents have enough background on tax and finance to make appropriate judgments about current tax system. Differences in prior knowledge and experience of tax system can have a decisive effect on the formation of taxpayer’s beliefs and attitudes toward the tax system. However, despite its importance, empirical studies on factors affecting the tax literacy of Korean taxpayers have not been properly conducted due to the difficulty of collecting data.
Existing prior studies use mostly self reported tax comprehension level by taxpayers as a proxy for tax knowledge. This research approach requires the premise that taxpayers can appropriately judge their level of understanding, and if this assumption does not hold, serious measurement errors may occur. Therefore, this study intends to analyze the factors that systematically affect the tax literacy of Korean taxpayers by using specific questionnaire items that measure their understanding of tax and finance in order to grasp the level of objective tax knowledge.
The purpose of this study is to present useful policy implications for establishing taxpayer education and public relations strategies based on empirical evidence on the current status of taxpayers’ tax knowledge level and the determinants of tax literacy in Korea. Using the correct answer and unknown answer which are the items that directly measure taxpayers’ tax and taxation of representative data from the 10th finance panel survey conducted by Korean Institute of Public Finance, we investigate the impact of Korean taxpayers’ economic and demographic traits on their tax literacy. In particular, the study attempts to discover Korean taxpayers’ economic and demographic traits such as age, gender, education, marital status that significantly influence their tax literacy regarding value-added tax rate, individual as well as corporate income tax rate, etc.
The followings are the findings of this study. As a result of empirical analysis using the tax literacy items, it is found that differences in economic and demographic traits of taxpayers have a significant effect on the level of tax literacy. The regression results reveal that higher level of education, higher income, marital status, reporting status, house ownership have a negative effect on the degree of un-informed tax knowledge. However, older taxpayers are more likely to be indifferent to the tax system. These results show that economic and demographic characteristics of taxpayers have an effect opposite to the effect on the correct perception of tax and the effect on the unknown perception to tax.
In this study, we explore traditional demographic variables such as age, gender, education, marital status have statistically significant impact on tax literacy. This study differs from previous studies and has academic contributions in that it is the first to analyze factors that systematically affect taxpayers’ understanding of tax and finances using objective measures of tax knowledge. In addition, the results of this study provides useful implication of the establishment and implementation of education and public relation programs necessary to enhance taxpayers’ understanding of the tax system. The study contributes to the literature by shedding new lights on the determinants of tax literacy towards the current Korean tax and fiscal system.