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Has the Government Lowered the Hours Worked? Evidence from Japan

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  • Ko, Jun-Hyung
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    Abstract

    Why does the hours worked show a decreasing pattern in the postwar Japanese economy? This paper answers this question in the background of the changing pattern of government spending and tax-imposing behaviors. We construct and simulate a standard optimal growth model with the following key features: various taxes and subsidies. Our main findings are as follows. First, we quantitatively find that the increasing pattern of taxes on labor income played a crucial role in influencing the declining pattern of hours worked in Japan. Second, consumption tax and subsidy have a limited role in explaining the labor supply because they cancel each other out. Third, pension benefit may influence the retirement of the people in their sixties but has a minor effect on the hours worked. Fourth, the legal reduction in the workweek length in 1990 can explain the low level of the hours worked since 1990. Fifth, subsistence consumption can account for the slope of hours worked but cannot explain the long-run level.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30058.

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    Date of creation: Apr 2011
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    Handle: RePEc:pra:mprapa:30058

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    Keywords: marginal tax rate; subsidy; hours worked; pension benefit;

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    1. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 297-323, December.
    2. Watanabe, Katsunori & Watanabe, Takayuki & Watanabe, Tsutomu, 2001. "Tax policy and consumer spending: evidence from Japanese fiscal experiments," Journal of International Economics, Elsevier, Elsevier, vol. 53(2), pages 261-281, April.
    3. Kaiji Chen & Ayse Imrohoroglu & Selo Imrohoroglu, 2005. "Japanese Saving Rate," Macroeconomics, EconWPA 0502017, EconWPA.
    4. Gunji, Hiroshi & Miyazaki, Kenji, 2011. "Estimates of average marginal tax rates on factor incomes in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 81-106, June.
    5. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
    6. Keisuke Otsu, 2007. "A Neoclassical Analysis of the Postwar Japanese Economy," IMES Discussion Paper Series 07-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
    7. Fumio Hayashi & Edward C. Prescott, 2008. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 116(4), pages 573-632, 08.
    8. Naohiro Yashiro & Takashi Oshio, 1999. "Social Security and Retirement in Japan," NBER Chapters, in: Social Security and Retirement around the World, pages 239-267 National Bureau of Economic Research, Inc.
    9. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report, Federal Reserve Bank of Minneapolis 321, Federal Reserve Bank of Minneapolis.
    10. MIYAZAWA Kensuke, 2010. "Pension Benefit and Hours Worked," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 10004, Research Institute of Economy, Trade and Industry (RIETI).
    11. R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2007. "The Saving Rate in Japan: Why It Has Fallen and Why It Will Remain Low," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-535, CIRJE, Faculty of Economics, University of Tokyo.
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