2011/5/16 ～ 2013/3/31

Financing Japan: Population Aging, Taxation and Labor Policy

Based on our project from last year, Financing Japan’s Health Care, we find although income tax is viewed more fare, it has a distortion effect on labor supply particularly in an aged economy. Consumption tax has less distortion on labor, but a sudden and general increase in consumption tax might affect the low-income and retired individuals largely. It is necessary to perform a more comprehensive investigation on those financing methods for the recovery activities as well as for the existing social programs. Therefore, this project will have two separate topics although the analysis approaches will be similar based on our previous establishment from last year: (1) Financing Japan’s recovery – income tax vs. consumption tax; (2) Financing Japan’s health care and pension – population aging and labor policy. The first, responding to the 311 earthquake, is to investigate what approach is better for financing the recovery in Japan after the big earthquake and the nuclear crisis. There is a debate on taxation methods for financing recovery activities. Using income tax is widely viewed more fair compared with consumption tax in the society. However, the advantages and disadvantages of each method are not completely investigated. The second one is an extension from our last year project – Financing Japan’s Health Care. We will extend the current framework to the public pension system as well. In addition to financing policy, we will also discuss if a policy of encouraging female labor supply can help to mitigate the tax burden in an aged economy. Accomplishment Report 2012