The main purpose of this study is to propose rational policy options for fine-tuning the structure of welfare expenditure.

Social security tax burdens are distributed in general across three actors: government, employers and employees. The government allocates budget for poverty reduction. Employers and employees contribute to social insurance programs, and the benefits of those schemes to smooth income over life-cycle. However, the structure of allocating financial burden has been changing in line with population aging and structural changes in the labour market

In order to explore the rational policy option in Korea, this study carries out three kinds of analysis. First, we compared the situations of and changes in financial systems in European welfare states. Second, an overview and assessment of the changing social security financial burden in three European Welfare states (Denmark, France and the United Kingdom) was provided. Third, the analysis of financial burden structure and its transition during 1990~2012 in Korea was conducted.

The experience of foreign countries and the implications of allocation of financial burden in Korea suggest that increasing individual income tax is a priority in short-term policy-making. In the long-term policy-making, the employer’s share of contribution to social insurance will need to be raised to make social security finances more sustainable.