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Spousal Tax Deduction, Social Security System and the Labor Supply of Japanese Married Women

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Abstract

Japanese spousal tax deduction and social security system cause a piecewise linear and discontinuous budget constraint for a married woman. Using a sample from the Japanese Panel Survey of Consumers, we estimate a labor supply model that simultaneously controls for wage endogeneity, sample selection into labor force as well as the possibly endogenous selection between different segments of the non-linear budget constraint. The effects of tax and social security system on the labor supply behavior of married women are more complex than the previous literature has pointed out. In particular, there are notable differences in the labor supply behavior of women who choose different segments of the budget constraint. The wage elasticity of women in the budget segment I (annual income less than the "1.03 million yen ceiling") is twice more negative (-1.28) than women in the budget segment III (annual income greater than the "1.41 million yen ceiling") (-0.60). The wage elasticity smaller than -1 for the budget segment I suggests that these women may be adjusting their hours of work so as to contain their income within the 1.03 million yen ceiling. Education has a positive effect on the hours of work for the budget segment III, but has no effect for the segment I. Unlike the budget segment III, the positive effect of education on wage is non-existent for the women in the budget segment I, indicating an under-utilization of the human capital of women who have chosen to be dependent on the husbands' income on the tax and social security purposes.

Suggested Citation

  • Shingo Takahashi & Masumi Kawade & Ryuta Ray Kato, 2009. "Spousal Tax Deduction, Social Security System and the Labor Supply of Japanese Married Women," Working Papers EMS_2009_16, Research Institute, International University of Japan.
  • Handle: RePEc:iuj:wpaper:ems_2009_16
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    File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2009_16.pdf
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    1. Toshihiro Ihori & Ryuta Ray Kato & Masumi Kawade & Shun-ichiro Bessho, 2005. "Public Debt and Economic Growth in an Aging Japan," CARF F-Series CARF-F-046, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
    3. Hideo Akabayashi, 2006. "The labor supply of married women and spousal tax deductions in Japan—a structural estimation," Review of Economics of the Household, Springer, vol. 4(4), pages 349-378, December.
    4. Horioka, Charles Yuji & Watanabe, Wako, 1997. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," Economic Journal, Royal Economic Society, vol. 107(442), pages 537-552, May.
    5. M. Anne Hill, 1989. "Female Labor Supply in Japan: Implications of the Informal Sector for Labor Force Participation and Hours of Work," Journal of Human Resources, University of Wisconsin Press, vol. 24(1), pages 143-161.
    6. Benjamin M. Friedman & Mark Warshawsky, 1985. "Annuity Prices and Saving Behavior in the United States," NBER Working Papers 1683, National Bureau of Economic Research, Inc.
    7. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    8. Ken Yamada, 2008. "Estimating labour supply and time allocation by married Japanese men and unmarried Japanese women," Applied Economics Letters, Taylor & Francis Journals, vol. 15(9), pages 659-666.
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    Cited by:

    1. YOKOYAMA, Izumi, 2015. "The Impact of Tax Reform in Japan on the Work-Hour and Income Distributions of Married Women," Discussion Papers 2015-02, Graduate School of Economics, Hitotsubashi University.

    More about this item

    Keywords

    Female labor supply; Spousal deduction; Social Security System; Non-linear budget constraint;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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