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Are Tax Cuts Effective Even In Anticipation Of A Future Tax Increase? Evidence From Japan'S Unique Episodes In The 1990s

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  • MASAHIRO HORI

    (Economic and Social Research Institute, Cabinet Office, Government of Japan, Japan)

  • SATOSHI SHIMIZUTANI

    (Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi-shi, Tokyo, 186-8630, Japan)

Abstract

This paper empirically investigates the effects of the 1995 and 1996 tax cuts in Japan. Both tax cuts were introduced to compensate consumers for an impending consumption tax rate increase from 3% to 5% in 1997. We use micro-level data of theFamily Income and Expenditure Surveyto evaluate effects of these tax cuts on household consumption, focusing on the differences between the two episodes. Our estimates indicate that theRicardian equivalencelargely holds. Only the 1995 tax cut distinctly stimulated consumption on its impact, while the 1996 tax cut had almost no effect on the consumption, presumably because it was implemented much closer to the coming tax increase.

Suggested Citation

  • Masahiro Hori & Satoshi Shimizutani, 2007. "Are Tax Cuts Effective Even In Anticipation Of A Future Tax Increase? Evidence From Japan'S Unique Episodes In The 1990s," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(02), pages 167-177.
    • Handle: RePEc:wsi:serxxx:v:52:y:2007:i:02:n:s0217590807002622
    DOI: 10.1142/S0217590807002622
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    References listed on IDEAS

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    1. HORI Masahiro & SHIMIZUTANI Satoshi, 2002. "Micro Data Studies on Japanese Tax Policy and Consumption in the 1990s," ESRI Discussion paper series 014, Economic and Social Research Institute (ESRI).
    2. Ishi, Hiromitsu, 2001. "The Japanese Tax System," OUP Catalogue, Oxford University Press, edition 3, number 9780199242566.
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    Cited by:

    1. Zheng, Liping & Severe, Sean, 2016. "Teaching the macroeconomic effects of tax cuts with a quasi-experiment," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 55-65.
    2. Nadia Belhaj Hassine-Belghith, 2007. "Exporting , Productive Efficiency and Product Quality: An Empirical Analysis Of the Agricultural Sector in the Mediterranean Countries," Working Papers 711, Economic Research Forum, revised 01 Jan 2007.

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