The Effect of Corporate Tax Rate Reduction: A simulation analysis with a small open economy DSGE model for Japan (Japanese)

Ryo Hasumi

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper studies the short-term and long-term effects of tax policy changes on the Japanese economy by using a small open economy dynamic stochastic general equilibrium (DSGE) model with endogenous stochastic trends. The parameters of the model are estimated by a usual Bayesian method based on Japanese quarterly macroeconomic data from 1980 to 2010. A simulation analysis of a 1% to gross domestic product (GDP) scale corporate tax reduction has been implemented, in which fiscal neutrality is kept by raising the consumption tax rate. The real GDP increases by about 1.1% and the consumer price index (CPI) (excluding the effect of the consumption tax change) rises by about 0.2% within two years. This result suggests that such tax policy change induces short-term increases in the growth and inflation rate.

Pages: 43 pages
Date: 2014-08
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:eti:rdpsjp:14040

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