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Factor decomposition of changes in the income tax base

Author

Listed:
  • Taro Ohno

    (Policy Research Institute, Ministry of Finance)

  • Junpei Sakamaki

    (Policy Research Institute, Ministry of Finance)

  • Daizo Kojima

    (Policy Research Institute, Ministry of Finance
    The University of Tokyo)

  • Tomotsugu Imahori

    (Policy Research Institute, Ministry of Finance)

Abstract

Following generous tax deductions, Japan’s income tax base is facing shrinkage; however, this trend has evolved not only due to changes to the tax system, but also due to changes in income distribution and population composition. In this study, we use household micro data from the National Survey of Family Income and Expenditure (NSFIE, 1994–2014) to explicate the state of deductions and trends in household distribution over a 20-year period while considering the contribution of each factor to changes in the tax base through decomposition. Using a microsimulation analysis, we also assess the effects of recent changes to the tax system on the tax base. Based on a long-term perspective, while the tax base has primarily been eroded due to the effects of falling incomes and an aging population, the contributions of tax system changes responding to such pressures have been limited. Including both expansion and contraction periods in the deduction system also has an effect. From a short-term perspective, changes in the tax system have had a certain impact, particularly in the 2000s, when the tax base was expanded by reducing deductions. However, this effect has eventually been offset by changes in income distribution and population composition.

Suggested Citation

  • Taro Ohno & Junpei Sakamaki & Daizo Kojima & Tomotsugu Imahori, 2024. "Factor decomposition of changes in the income tax base," The Japanese Economic Review, Springer, vol. 75(1), pages 1-28, January.
    • Handle: RePEc:spr:jecrev:v:75:y:2024:i:1:d:10.1007_s42973-023-00125-6
    DOI: 10.1007/s42973-023-00125-6
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    More about this item

    Keywords

    Income tax; Tax deduction; Tax base; Japan;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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