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Implied Subsidies for Tax Incentives to Increase Wages and Excess Burden in Japan

Author

Listed:
  • Toshiyuki Uemura

    (School of Economics, Kwansei Gakuin University)

Abstract

The wage-increase promotion tax system was introduced in the 2013 tax reform. It is an internationally unique system that aims to increase wages through corporate tax credits. This study focuses on the "hidden subsidies" and excess burdens necessary to make policy decisions about the wage-increase promotion tax credits. The study incorporated the wage-increase tax system into a firm-behavior model for analyzing corporate taxation to present the "implied wage-increase subsidy rate" concept as an indicator of a subsidy's extent and scope, and a method for measuring the excess burden. It measures the "implied wage-increase subsidy rate" and excess burden using financial data for individual firms. First, the "implied wage-increase subsidy rate" indicates that the wage-increase promotion tax system has expanded the subsidy's extent and scope. Second, the wage-increase promotion tax credits increase the producer surplus of applicable firms but exponentially increase the excess burden, which is social loss. Third, no significant difference is found in the changes in labor productivity between applicable and non-applicable firms. Global corporate tax reform tends to lean toward a neutral tax system, and the wage-increase promotion tax system may not fit this trend.

Suggested Citation

  • Toshiyuki Uemura, 2024. "Implied Subsidies for Tax Incentives to Increase Wages and Excess Burden in Japan," Discussion Paper Series 271, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:271
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    File URL: http://192.218.163.163/RePEc/pdf/kgdp271.pdf
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    More about this item

    Keywords

    wage-increase promotion tax system; implied wage-increase subsidy; excess burden;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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