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Short-run Distributional Effects of VAT Rate Change: Evidence from a consumption tax rate increase in Japan

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  • David CASHIN
  • UNAYAMA Takashi

Abstract

Households will purchase more items than usual prior to a value added tax (VAT) rate increase in order to avoid taxation. Since this type of arbitrage requires resources such as shopping time and storage space, the impacts of tax increases vary across households, which has brought distributional effects in the short-run. Using the case of a consumption tax rate increase in Japan in 1997, we show that households who are non-working, with non-working spouses and residing in larger houses, benefited from more arbitrage. To minimize short-run economic disturbances, step-by-step increases would be useful.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12029.

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Length: 34 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:eti:dpaper:12029

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  1. Karel Mertens & Morten O. Ravn, 2012. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 145-81, May.
  2. David CASHIN & UNAYAMA Takashi, 2011. "The Intertemporal Substitution and Income Effects of a VAT Rate Increase: Evidence from Japan," Discussion papers 11045, Research Institute of Economy, Trade and Industry (RIETI).
  3. Melvin Stephens & Takashi Unayama, 2011. "The Consumption Response to Seasonal Income: Evidence from Japanese Public Pension Benefits," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 86-118, October.
  4. Christopher L. House & Matthew D. Shapiro, 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation," American Economic Review, American Economic Association, vol. 98(3), pages 737-68, June.
  5. Thomas F. Crossley & Hamish Low & Matthew Wakefield, 2009. "The Economics of a Temporary VAT Cut," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 3-16, 03.
  6. Horioka, Charles Yuji, 1990. "Why is Japan's household saving rate so high? A literature survey," Journal of the Japanese and International Economies, Elsevier, vol. 4(1), pages 49-92, March.
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