Do the self-employed underreport their income? Evidence from Japanese panel data

Takeshi Niizeki and Junya Hamaaki

Journal of the Japanese and International Economies, 2023, vol. 67, issue C

Abstract: This paper examines to what extent self-employed households underreport their income to tax authorities in Japan. To this end, we employ the so-called expenditure-based approach, which essentially compares the current expenditure of self-employed and wage earner households while controlling for their income, net worth, and household characteristics. Using Japanese household-level panel data for the period 2009−2019, we find that the self-employed possibly underreport their income by 33.0–36.4%. Our findings are also robust to the different preferences (degree of risk-loving, time discount rates, etc.), planned retirement age, and degree of measurement error in expenditure between the self-employed and wage earners.

Keywords: Income underreporting; Self-employment; Engel curves; Life-cycle/permanent income hypothesis (search for similar items in EconPapers)
JEL-codes: D15 E21 H26 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:67:y:2023:i:c:s0889158322000533

DOI: 10.1016/j.jjie.2022.101244

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