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A Structural Estimation of the Effects of Spousal Tax Deduction and Social Security Systems on the Labor Supply of Japanese Married Women

Japanese spousal tax deduction and social security systems cause a non-convex piece-wise budget constraint for married women. Using a pooled sample from the Japanese Panel Survey of Consumers, we structurally estimated a labor supply model that explicitly takes into account the nonlinearity in the budget constraint. Our results suggest that the effects of spousal deduction and social security reforms on the labor supply of Japanese married women would be much smaller than what the past reduced form studies suggest. The reform to completely eliminate the spousal tax deduction would increase the population labor supply only by 0.7%, though the labor supply responses of the most affected workers would be nontrivial, with their desired hours worked increasing by as much as 4%. The policy reform to require all women to pay the social security premium regardless of their income level would have almost no effects on the population labor supply. Our results also suggest that lump-sum income transfer programs, such as the current child care support program, would have negligible effects on female labor supply unless the transfers are substantially large.

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File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_08.pdf
File Function: First version, 2010
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Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2010_08.

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Length: 40 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:iuj:wpaper:ems_2010_08
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  1. 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.
  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. G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Masaru Sasaki, 2002. "The Causal Effect of Family Structure on Labor Force Participation among Japanese Married Women," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 429-440.
  5. Yukiko Abe, 2009. "The Effects Of The 1.03 Million Yen Ceiling In A Dynamic Labor Supply Model," Contemporary Economic Policy, Western Economic Association International, vol. 27(2), pages 147-163, 04.
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