AP Comp Gov
18 October 2018
North Korea and South Korea are countries that started with similar wealth and resources in 1950 and ended up in vastly different economic situations and political structures 60 years later. According to Why Nations Fail by Acemoglu and Robinson, South Korea’s GDP in 2013 was $33,200 and North Korea’s was only $1,800 in 2011. South Koreas economic success can be attributed to its capitalist tendencies. The country has very strict rules about how involved the government can be in companies, with the hope that this will keep the businesses in the economy stable. North Korea has a very different system, where all the imports and exports are monitored by the government.
According to the Korean Times, South Korea has the seventh highest tax rate in the among economically advanced countries at 25%. Many Koreans are worried that this high tax rate will reduce the competitive potential of companies and that a lower tax rate will allow Korea to become even more progressive. North Korea on the other hand, has gone the opposite direction and claims to be the only tax-free country in the world. They do however have a sales tax of 15% on everything.
What can North Korea do to improve its economy?
North Korea and South Korea are models of how different governments affect the economy. The communism of North Korea clearly limits how successful the economy can be international because they have no free market. South Korea, on the other hand, practices a more liberal economy, or laissez-faire. If North Korea were to loosen regulations and allow corporations and business to emerge their economy would most likely mirror that of South Korea. However, this outcome is unlikely while Kim Jung-Un is the dictator.
Dickovick, J. Tyler, and Johnathan Eastwood. Comparative Politics: Integrating Theories, Methods, and Cases. Second edition. Pages 114-117
Kyung-min, Lee. “Korea’s Corporate Tax Rate 7th Highest in OCED.” Koreatimes. October 18, 2018. Accessed October 19, 2018. http://www.koreatimes.co.kr/www/biz/2018/10/488_257242.html.
“North Korea Sales Tax Rate – VAT 2014-2018 | Data | Chart | Calendar.” North Korea Sales Tax Rate – VAT | 2014-2018 | Data | Chart | Calendar. Accessed October 19, 2018. https://tradingeconomics.com/north-korea/sales-tax-rate.