Should Japanese Tax System Be More Progressive?

Shun-ichiro Bessho
Masayoshi Hayashi

March 2011


We investigate the effects of marginal changes of marginal tax rates of Japanese income tax system, computing the social marginal costs of public funds (SMCF) generated by marginal increase in tax rates. We use large micro data sets on Japanese households, and estimate a structural discrete choice model of household labor supply. Our estimation results show that the average of total elasticity of males ranges between 0.0276 and 0.0521, and that of female between 0.0429 and 0.2134. Based on the estimated utility functions, we find that SMCF for raising the marginal tax rate applied for those with low- or medium-income level is smaller than those with more income. Our results could suggest Japanese income tax system should be less progressive.

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