The objective of this paper is to estimate the composite tax function and identify the basic characteristics of labor income tax. Different from other related works, an indirect approach is adopted to derive the tax function via estimating nonlinear relationship between labor income and tax components. The nonlinear functional form for each component of 13 income deductions and four tax credit and exemption are estimated by the nonparametric spline method based on the grouped data of the labor income and tax provided by National Tax Service (NTS).

  According to the statistical analysis, as income increases, the tax saving due to the deduction tends to incline. Thus, it might be argued that the current deduction system, in terms of income redistribution, functions regressively since there is no remarkable difference in reducing the tax burden between high-income and low-income brackets. We also found that tax incidence of the tax credit and exemption shows ‘inverted U-shape,’ being well fitted to income redistribution.