A Study on the Idea of Heavy Taxation on the Unearned Income from Real Estate and Gradual Institutional Change focusing on Land Excess-Profit Tax and Comprehensive Real Estate Holding Tax in Korea

The objective of this study is to explain the policy changes in heavy property tax that led to the introduction of the Land Excess-Profit Tax (LEPT) in 1989 and the Comprehensive Real Estate Holding Tax (CREHT) in 2005, based on the theory of gradual institutional change. Both the LEPT and the CREHT are grounded in the public concept of land, which holds that speculative rent should be absorbed by the public. However, the specific forms of these policies have gradually changed through a process of conversion, drift, and layering. The LEPT, one of the three laws embodying this public concept, was introduced in 1989 by the Roh Tae-woo government through conversion. However, tax resistance emerged as a side effect because the operation did not fulfill its original purpose, leading to its abolition in 1997 due to the IMF's foreign exchange crisis. It was then converted into the CREHT in 2005 by the Roh Moo-hyun government. The CREHT strengthened the existing comprehensive land tax to replace the unconstitutional LEPT and differed from the LEPT by imposing taxes on excess property tax bases. Nevertheless, it faced neutralization due to tax resistance, and an unconstitutional ruling by the Constitutional Court during the Lee Myung-bak administration. It has since been repeatedly tightened and loosened by successive governments. The concept of heavy property tax, initially a rent tax based on the public concept of land, has primarily been used to curb speculation during periods of rapidly rising real estate prices. Compared to the LEPT, the CREHT demonstrated institutional flexibility by adjusting the function of heavy taxation as needed and was used to curb real estate speculation and tax the wealthy. Even if the CREHT is repealed, the idea of heavy property tax could potentially be absorbed into the existing property tax system.