Impact of Population Aging on the Personal Income Tax Base in Japan: Simulation Analysis of Taxation on Pension Benefits Using Micro Data
Hiroyuki Yashio and
Keishi Hachisuka
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Hiroyuki Yashio: Associate Professor, Faculty of Economics, Kyoto Sangyo University
Keishi Hachisuka: Former Researcher, Policy Research Institute, Ministry of Finance
Public Policy Review, 2014, vol. 10, issue 3, 519-542
Abstract:
In Japan, the ratio of public pension benefits to overall individual income (earned income and pension benefits) is rising due to population aging. A pay-as-you-go pension system represents a transfer of income from the working-age population to the retired generation. Therefore, in principle, the system itself does not work to reduce the personal income tax base at a macro level. However, because of the effects of generous income deductions applied to public pension benefits, the overall tax base is expected to be significantly eroded. From the viewpoint of this problem, this paper uses micro data to quantitatively evaluate the recent changes in the personal income tax base across Japan. It also conducts a simulation analysis to determine the extent to which tax base erosion can be mitigated by strengthening taxation on pension benefits. The analysis shows that population aging, coupled with economic stagnation, has continued to erode the tax base in recent years, although it has not been apparent due to the tax reforms implemented in 2005 and 2006. In the future, the tax base is likely to be eroded further. The National Council on Social Security (2013), for example, proposed strengthening the taxation on pension benefits for high-income earners. However, the analysis found that from the viewpoint of the tax policy, the effect of such a reform on the overall tax base would be extremely limited. Presumably, it is necessary to review the preferential treatment that is widely applied to pension benefits.
Keywords: income tax; taxation on pension benefits; tax base; simulation (search for similar items in EconPapers)
JEL-codes: H24 H55 J18 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)
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Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr026f
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