• Journal of Labour Economics
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• v.40 no.3
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• pp.57-77
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• 2017

To prevent the disincentive of labor supply under the current welfare system, we suggest the safety income system, a Korean version of negative income tax. Under the proposed system, for example, a household with four members whose annual income is less than 50 million wons will get financial support from the government. Under the safety income system, labor supply increases and so does the gross domestic product. The disposable income of low-income households increases, which alleviates the income gap among households. Analyzing the Household Income and Expenditure Survey data, we show that under the safety income system the disposable income differentials among households are reduced much more than under the current welfare system or under the universal basic income system.