The inter-cohort distributional effects of Japan's indirect tax reforms

Takeshi Kogawa
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Takeshi Kogawa: University of Warwick

Warwick-Monash Economics Student Papers from Warwick Monash Economics Student Papers

Abstract: This study attempts to estimate how Japans consumption tax reforms affected the welfare of different cohorts of households, using long-term household level panel data including age of head, income and expenditure of each household in Japan. In order to evaluate distributional effects of tax reform, this study compares lifetime Equivalent Variations, which are calculated from estimated value of lifetime share of expenditure on food. As a result, it is shown that, the consumption tax reform in 2019, in which tax rates on non-food items was hiked from 8% to 10%, reduced utility by 1.29% to 1.55% in terms of the EVs in the income ratio, with relatively large effects on the younger, higher-income groups. Furthermore, a simulation analysis of the effect of a tax reduction when the consumption tax rate on food products is set at 0% in 2025 was conducted suggests that the reduced tax rate system could have a certain positive economic effect on the lower-income groups but that the older, higher-income groups could be disproportionately affected.

Keywords: Value Added Tax; Tax reform; Distributional effects; Equivalent Variations; Japan JEL Classification: D12; H24; H31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:wrkesp:32

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