Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply

Shun-ichiro Bessho and Masayoshi Hayashi

International Tax and Public Finance, 2015, vol. 22, issue 1, 144-175

Abstract: This study proposes a method to obtain the social marginal costs of public funds (SMCF) that allows for heterogeneity on a household basis as well as labor supply responses along both the extensive and the intensive margins. To demonstrate our methodology, we take the example of the 1999 national income tax reform in Japan and evaluate it by estimating the SMCFs for changing marginal tax rates in different income brackets. We estimate the discrete choice model (DCM) of labor supply using a 1997 data set of Japanese households, and we use the estimates to generate the SMCFs with a DCM micro-simulation. We evaluate the simulated SMCFs with various distributional weights and find that the value of the SMCF for a 1 % increase in the marginal tax rate in any given income bracket decreases as we move across brackets from the bottom to the top. This finding suggests that the national government should have made the Japanese income tax system more progressive rather than less progressive as carried out in the 1999 reform. Our method is readily transferrable to tax reforms in other countries as well. Copyright Springer Science+Business Media New York 2015

Keywords: Social marginal cost of public funds; Discrete choice model; Household labor supply; Japan; H21; H24; H31; J22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10797-014-9303-6 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Should the Japanese Tax System Be More Progressive? An Evaluation Using Simulated SMCFs Based on the Discrete Choice Model of Labor Supply (2012)
Working Paper: Should Japanese Tax System Be More Progressive? (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:1:p:144-175

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-014-9303-6

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().