Should the Japanese Tax System Be More Progressive? An Evaluation Using Simulated SMCFs Based on the Discrete Choice Model of Labor Supply
AbstractThis paper evaluates the 1999 national income tax reform in Japan by comparing the social marginal costs of public funds (SMCFs) for changing the marginal tax rates in different income brackets before the reform occurred. To do so, we estimate the discrete choice model of labor supply using a data set of Japanese households in 1997 derived from the Employment Status Survey. We obtain an analog of the SMCF that allows for labor supply responses along both the intensive and the extensive margins on an individual basis. We generate such SMCFs using a micro-simulation method that utilizes the discrete choice model estimates for household preferences. Based on the simulated SMCFs evaluated using various distributional weights, we find that the value of the SMCF for a 1% increase in the marginal tax rate in any given income bracket decreases as the bracket moves from the bottom to the top. This finding suggests that the national government should have made the Japanese income tax system more progressive rather than less progressive as carried out in the 1999 reform.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-848.
Length: 32 pages
Date of creation: Apr 2012
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Other versions of this item:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-04-23 (Accounting & Auditing)
- NEP-ALL-2012-04-23 (All new papers)
- NEP-CMP-2012-04-23 (Computational Economics)
- NEP-DCM-2012-04-23 (Discrete Choice Models)
- NEP-PBE-2012-04-23 (Public Economics)
- NEP-PUB-2012-04-23 (Public Finance)
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