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The Impact of Marginal Tax Reforms on the Supply of Health Related Services in Japan

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Abstract

This paper presents a computable general equilibrium (CGE) framework to numerically examine the effect of marginal tax reforms on the supply side of health related sectors. The generalized framework with the latest Japanese input-output table of year 2005 with 108 different production sectors provides the following results: An expansion of subsidies to the hospital sector creates the largest welfare gain when the government does not take into account its financing explicitly. The effect of such a policy on economic efficiency is more than ten times as much as the cost. However, such an expansion policy does necessarily not eventuate in the largest gain anymore if the government considers its balanced budget. The reduction of subsidies to the hospital sector reversely results in the largest welfare gain if the government uses its surplus induced by the reduction of subsidies, in order to decrease the tax imposed on the social welfare sector. Furthermore, if the hospital sector is compensated by lump-sum trasfers when its net subsidy rate is reduced, then a welfare gain could become larger. If the govenment uses its surplus not only for the reduction of the net tax rate of the social welfare sector but also for lump-sum transfers to the hospital sector in order to keep its income unchanged, then a larger welfare gain would be obtained, even if the government implements a balanced budget policy. This implies that a welfare enhancing tax reform within health related sectors is plausible as long as the net subsidy rate of the hospital sector can be reduced. Such a reform does not create any new government deficits either.

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File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2011_19.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2011_19.

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Length: 50 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:iuj:wpaper:ems_2011_19

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Keywords: Computable General Equilibrium (CGE) Model; Marignal Tax Reform; Health Sectors; Taxation; Subsidy; Simulation;

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  1. Kato, Ryuta, 1998. "Transition to an Aging Japan: Public Pension, Savings, and Capital Taxation," Journal of the Japanese and International Economies, Elsevier, vol. 12(3), pages 204-231, September.
  2. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867, Fall.
  3. Toshihiro Ihori & Ryuta Ray Kato & Masumi Kawade & Shun-ichiro Bessho, 2005. "Public Debt and Economic Growth in an Aging Japan," CIRJE F-Series CIRJE-F-372, CIRJE, Faculty of Economics, University of Tokyo.
  4. Scarf,Herbert E. & Shoven,John B., 2008. "Applied General Equilibrium Analysis," Cambridge Books, Cambridge University Press, number 9780521070935, Fall.
  5. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Introduction to "A General Equilibrium Model for Tax Policy Evaluation"," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 1-5 National Bureau of Economic Research, Inc.
  6. Ballard, Charles L. & Fullerton, Don & Shoven, John B. & Whalley, John, 2009. "A General Equilibrium Model for Tax Policy Evaluation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226036335, October.
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