ARE TAX CUTS EFFECTIVE EVEN IN ANTICIPATION OF A FUTURE TAX INCREASE? EVIDENCE FROM JAPAN'S UNIQUE EPISODES IN THE 1990S

Masahiro Hori and Satoshi Shimizutani

The Singapore Economic Review (SER), 2007, vol. 52, issue 02, 167-177

Abstract: This paper empirically investigates the effects of the 1995 and 1996 tax cuts in Japan. Both tax cuts were introduced to compensate consumers for an impending consumption tax rate increase from 3% to 5% in 1997. We use micro-level data of theFamily Income and Expenditure Surveyto evaluate effects of these tax cuts on household consumption, focusing on the differences between the two episodes. Our estimates indicate that theRicardian equivalencelargely holds. Only the 1995 tax cut distinctly stimulated consumption on its impact, while the 1996 tax cut had almost no effect on the consumption, presumably because it was implemented much closer to the coming tax increase.

Keywords: Tax cuts; Ricardian equivalence; excess sensitivity (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217590807002622

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