Factor decomposition of changes in the tax base for income tax

Taro Ohno, Junpei Sakamaki and Daizo Kojima
Additional contact information
Taro Ohno: Associate Professor, Research Center for Social Systems, Shinshu University
Junpei Sakamaki: Researcher, Policy Research Institute, Ministry of Finance
Daizo Kojima: Associate Professor, Graduate School of Agricultural and Life Sciences, The University of Tokyo

Discussion papers from Policy Research Institute, Ministry of Finance Japan

Abstract: Following generous tax deductions, Japan's income tax base is facing shrinkage. However, this trend has evolved not only due to changes to the system, but also due to changes to the income distribution and population composition. In this study we use household micro data from the National Survey of Family Income and Expenditure (NSFIE, 1994-2014) to explicate the state of deductions and trends in household distribution over a 20-year period while considering each factor fs contribution to changes in the tax base, through their decomposition. Using a micro-simulation analysis, we also assess the effects of recent changes to the tax system on the tax base. Based on a long-term perspective, while the tax base has been eroded mainly due to the effects of falling incomes and an aging population, the contribution of system changes in response to such pressures has been limited. The inclusion of both the expansion and contraction periods in the deduction system also has an effect. Based on a short-term perspective, changes to the system have had a certain impact because, particularly in the 2000s, the tax base was expanded by reducing deductions. However, this effect has eventually been offset by the changes in income distribution and population composition. Following the ongoing effects of change such as falling incomes and population aging, it is necessary to fundamentally reform the income tax system so that it can have a greater effect, including restoring its fiscal funding and income redistribution functions, as well as the ideal form of the tax base.

Keywords: Income tax; tax deduction; tax base; National Survey of Family Income and Expenditure (search for similar items in EconPapers)
JEL-codes: C15 H24 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-08
New Economics Papers: this item is included in nep-cmp and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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