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Effect of income-increasing deduction in personal income tax on the burden reduction and income redistribution: Evidence from Japan

Author

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  • Ohno, Taro
  • Imahori, Tomotsugu
  • Kojima, Daizo

Abstract

Deduction system is an important element for fulfilling the purposes of the personal income taxation. Designing an ideal system of deductions requires understanding the burden reduction effect and its impact on income redistribution due to taxes. In this study, we use Japanese household microdata (1994–2019) to empirically evaluate the burden reduction and redistributive effects of income-increasing deductions on personal income tax. In addition, we separate the changes in the redistribution effect of the deductions into system and non-system reforms. The higher the income bracket, the more effective the deductions in reducing the tax burden due to the impact of the income-increasing part of the deductions. The burden reduction effect of deductions is found to have declined over the sample period of 25 years, mainly due to the impact of system reforms. Moreover, Unlike the other parts that enhance the redistributive effects, the income-increasing part of deductions reduces the redistributive effects.

Suggested Citation

  • Ohno, Taro & Imahori, Tomotsugu & Kojima, Daizo, 2025. "Effect of income-increasing deduction in personal income tax on the burden reduction and income redistribution: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:japwor:v:73:y:2025:i:c:s0922142524000598
    DOI: 10.1016/j.japwor.2024.101296
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    More about this item

    Keywords

    income tax; income-increasing deduction; tax burden; redistribution;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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