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The inter-cohort distributional effects of Japan's indirect tax reforms

Author

Listed:
  • Kogawa, Takeshi

    (University of Warwick)

Abstract

This study attempts to estimate how Japans consumption tax reforms affected the welfare of different cohorts of households, using long-term household level panel data including age of head, income and expenditure of each household in Japan. In order to evaluate distributional effects of tax reform, this study compares lifetime Equivalent Variations, which are calculated from estimated value of lifetime share of expenditure on food. As a result, it is shown that, the consumption tax reform in 2019, in which tax rates on non-food items was hiked from 8% to 10%, reduced utility by 1.29% to 1.55% in terms of the EVs in the income ratio, with relatively large effects on the younger, higher-income groups. Furthermore, a simulation analysis of the effect of a tax reduction when the consumption tax rate on food products is set at 0% in 2025 was conducted suggests that the reduced tax rate system could have a certain positive economic effect on the lower-income groups but that the older, higher-income groups could be disproportionately affected.

Suggested Citation

  • Kogawa, Takeshi, 2021. "The inter-cohort distributional effects of Japan's indirect tax reforms," Warwick-Monash Economics Student Papers 32, Warwick Monash Economics Student Papers.
    • Handle: RePEc:wrk:wrkesp:32
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/wmesp/manage/32_-_takeshi_kogawa.pdf
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    References listed on IDEAS

    as
    1. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "The efficiency of indirect taxes under imperfect competition," Journal of Public Economics, Elsevier, vol. 81(2), pages 231-251, August.
    2. Banks, James & Blundell, Richard & Lewbel, Arthur, 1996. "Tax Reform and Welfare Measurement: Do We Need Demand System Estimation?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1227-1241, September.
    3. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
    4. Carbonnier, Clement, 2007. "Who pays sales taxes? Evidence from French VAT reforms, 1987-1999," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1219-1229, June.
    5. Kartik B. Athreya & Devin Reilly, 2009. "Consumption smoothing and the measured regressivity of consumption taxes," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Win), pages 75-100.
    6. Cathal O’Donoghue & Jinjing Li & Ilona Cserháti & Péter Elek & Tibor Keresztély & Tibor Takács, 2018. "The Distributional Impact of VAT Reduction for Food in Hungary: Results from a Hungarian Microsimulation Model," International Journal of Microsimulation, International Microsimulation Association, vol. 11(3), pages 2-38.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Value Added Tax ; Tax reform ; Distributional effects ; Equivalent Variations ; Japan JEL Classification: D12 ; H24 ; H31;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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

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