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.
| Original language | English |
|---|---|
| Pages (from-to) | 1-32 |
| Number of pages | 32 |
| Journal | International Tax and Public Finance |
| DOIs | |
| Publication status | Accepted/In press - 2014 |
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Keywords
- Discrete choice model
- Household labor supply
- Japan
- Social marginal cost of public funds
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
- Accounting
Cite this
Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply. / Bessho, Shun ichiro; Hayashi, Masayoshi.
In: International Tax and Public Finance, 2014, p. 1-32.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Should the Japanese tax system be more progressive? An evaluation using the simulated SMCFs based on the discrete choice model of labor supply
AU - Bessho, Shun ichiro
AU - Hayashi, Masayoshi
PY - 2014
Y1 - 2014
N2 - 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.
AB - 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.
KW - Discrete choice model
KW - Household labor supply
KW - Japan
KW - Social marginal cost of public funds
UR - http://www.scopus.com/inward/record.url?scp=84893855152&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84893855152&partnerID=8YFLogxK
U2 - 10.1007/s10797-014-9303-6
DO - 10.1007/s10797-014-9303-6
M3 - Article
AN - SCOPUS:84893855152
SP - 1
EP - 32
JO - International Tax and Public Finance
JF - International Tax and Public Finance
SN - 0927-5940
ER -