Japan’s Inequality and Redistribution: The Perspectives of Human Capital and Taxation/Social Insurance

Inequality and redistribution have been widely discussed internationally and they are an important policy agenda in Japan as well. In this paper, we delve into the history of the academic debate on inequality and redistribution from the perspective of human capital, and draw policy implications for Japan. Further, we examine the current state of inequality and redistribution from the point of view of both household income and expenses, and taking account of the implications from the academic discussion, present several points for future discussion. The traditional academic argument posits that there is a trade-off relationship between income redistribution and economic development. However, more recently, scholar have argued that redistribution and economic growth are compatible and mutually complementary; inequality could negatively impact economic development, or income redistribution could positively impact economic development. Particular attention has been paid to the importance of a redistribution policy that promotes human capital development. In terms of inequality and redistribution in Japan, the majority of benefits provided to households are directed towards senior citizens and less towards human capital accumulation. Further, low-income households spend less on education, both in relative and absolute terms, and the education expenses of households with householders who do not have fulltime employment are even lower. Examining household expenditure, we find that the impact of redistribution among income groups is diminished by wage deduction, regressive social insurance premiums, and taxation of financial income. From the point of view of household income, it is important to consider redistribution methods that—in line with implications from the related academic discussion—promote human capital accumulation. From the point of view of household expenses, a taxation/social insurance premium regime should promote effective redistribution.