IDEAS home Printed from https://ideas.repec.org/a/mof/journl/ppr026f.html
   My bibliography  Save this article

Impact of Population Aging on the Personal Income Tax Base in Japan : Simulation Analysis of Taxation on Pension Benefits Using Micro Data

Author

Listed:
  • Hiroyuki Yashio

    (Associate Professor, Faculty of Economics, Kyoto Sangyo University)

  • Keishi Hachisuka

    (Former Researcher, Policy Research Institute, Ministry of Finance)

Abstract

In Japan, the ratio of public pension benefits to overall individual income (earned income and pension benefits) is rising due to population aging. A pay-as-you-go pension system represents a transfer of income from the working-age population to the retired generation. Therefore, in principle, the system itself does not work to reduce the personal income tax base at a macro level. However, because of the effects of generous income deductions applied to public pension benefits, the overall tax base is expected to be significantly eroded. From the viewpoint of this problem, this paper uses micro data to quantitatively evaluate the recent changes in the personal income tax base across Japan. It also conducts a simulation analysis to determine the extent to which tax base erosion can be mitigated by strengthening taxation on pension benefits. The analysis shows that population aging, coupled with economic stagnation, has continued to erode the tax base in recent years, although it has not been apparent due to the tax reforms implemented in 2005 and 2006. In the future, the tax base is likely to be eroded further. The National Council on Social Security (2013), for example, proposed strengthening the taxation on pension benefits for high-income earners. However, the analysis found that from the viewpoint of the tax policy, the effect of such a reform on the overall tax base would be extremely limited. Presumably, it is necessary to review the preferential treatment that is widely applied to pension benefits.

Suggested Citation

  • Hiroyuki Yashio & Keishi Hachisuka, 2014. "Impact of Population Aging on the Personal Income Tax Base in Japan : Simulation Analysis of Taxation on Pension Benefits Using Micro Data," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 10(3), pages 519-542, October.
    • Handle: RePEc:mof:journl:ppr026f
    as

    Download full text from publisher

    File URL: https://warp.da.ndl.go.jp/info:ndljp/pid/11217434/www.mof.go.jp/english/pri/publication/pp_review/ppr026/ppr026f.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ejii Tajika & Hiroyuki Yashio, 2007. "The Role of Personal Income Tax to Mitigate Widening Income Inequality: the Case of Japan," Journal of Income Distribution, Ad libros publications inc., vol. 16(3-4), pages 55-70, September.
    2. Hiroyuki Yashio & Yuichi Hasegawa, 2009. "The Household Consumption Tax Burden in Japan (in Japanese)," Economic Analysis, Economic and Social Research Institute (ESRI), vol. 182, pages 27-46, July.
    3. Karen Smith Conway & Jonathan C. Rork, 2008. "Income Tax Preferences for the Elderly," Public Finance Review, , vol. 36(5), pages 523-562, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cylus, Jonathan & Williams, Gemma & Carrino, Ludovico & Roubal, Tomas & Barber, Sarah, 2022. "Population ageing and health financing: A method for forecasting two sides of the same coin," Health Policy, Elsevier, vol. 126(12), pages 1226-1232.
    2. Fructuoso Borrallo & Susana Párraga-Rodríguez & Javier J. Pérez, 2021. "Los retos de la fiscalidad ante el envejecimiento: evidencia comparada de la Unión Europea, Estados Unidos y Japón," Occasional Papers 2102, Banco de España.
    3. Masumi Kawade, 2018. "National Burden and Economic Inequality: Micro-Simulation Analysis," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(2), pages 245-266, March.
    4. Prammer, Doris, 2019. "How does population ageing impact on personal income taxes and social security contributions?," The Journal of the Economics of Ageing, Elsevier, vol. 14(C).
    5. Honda, Jiro & Miyamoto, Hiroaki, 2021. "How does population aging affect the effectiveness of fiscal stimulus over the business cycle?," Journal of Macroeconomics, Elsevier, vol. 68(C).
    6. Taro Ohno & Junpei Sakamaki & Daizo Kojima, 2020. "Factor decomposition of changes in the tax base for income tax," Discussion papers ron331, Policy Research Institute, Ministry of Finance Japan.
    7. Ohno, Taro & Sakamaki, Junpei & Kojima, Daizo & Imahori, Tomotsugu, 2021. "Effects of deductions on the tax burden reduction and the redistribution of the income and resident taxes," Japan and the World Economy, Elsevier, vol. 60(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ben Brewer & Karen Smith Conway & Jonathan C. Rork, 2022. "Do income tax breaks for the elderly affect economic growth?," Contemporary Economic Policy, Western Economic Association International, vol. 40(1), pages 7-27, January.
    2. Schaltegger, Christoph A. & Somogyi, Frank & Sturm, Jan-Egbert, 2011. "Tax competition and income sorting: Evidence from the Zurich metropolitan area," European Journal of Political Economy, Elsevier, vol. 27(3), pages 455-470, September.
    3. Jie Pan & Gary Wagner, 2011. "The Effect of State Tax Preferences on the Living Arrangements of Elderly Individuals," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(2), pages 193-210, May.
    4. Heller, Peter S., 2016. "The challenge of an aged and shrinking population: Lessons to be drawn from Japan’s experience," The Journal of the Economics of Ageing, Elsevier, vol. 8(C), pages 85-93.
    5. Lucie Schmidt & Purvi Sevak, 2006. "Taxes, Wages, and the Labor Supply of Older Americans," Working Papers wp139, University of Michigan, Michigan Retirement Research Center.
    6. Masumi Kawade, 2018. "National Burden and Economic Inequality: Micro-Simulation Analysis," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(2), pages 245-266, March.
    7. Elena S. Vylkova, 2021. "Personal income tax: Reforms in Russia and their impact on the income inequality," Journal of New Economy, Ural State University of Economics, vol. 22(2), pages 5-22, July.

    More about this item

    Keywords

    income tax; taxation on pension benefits; tax base; simulation;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mof:journl:ppr026f. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Policy Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/prigvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.