Tax Reforms, Redistribution and Population Aging: Evidence from Japan

Abstract

In the 1980s, income tax rates decreased and income tax deduction thresholds changed through income tax reforms in the OECD countries. Likewise, in Japan in the 1980s and 1990s, income tax rates decreased and the income tax deduction threshold increased. Recently, it has been pointed out that inequality and redistribution vary over different age groups. This study attempts to explore how different the redistributive effects of the income tax reforms in Japan are among various age groups, using Japanese household micro-data for the period 1984–2009. The following results are obtained. First, the overall redistributive effect was greatest for the elderly group, followed by the middle-age group, and then the young group for the period 1984–2009. Furthermore, this trend increased steadily over time. Second, the difference in the total redistributive effect between the young and elderly increased owing to a large reduction in the base effect for the young. Third, the redistributive effect of income tax for the older elderly group is smaller than that for the younger elderly group. The consequences from Japan’s experience could provide insightful suggestions for redistribution policies in other countries, most of which will face an aging society in the future.

Keywords: base effect; personal income tax; population aging; rate effect; redistribution

JEL Classification: D31, H2, H24