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Short-run Distributional Effects of VAT Rate Change: Evidence from a consumption tax rate increase in Japan

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  • David CASHIN
  • UNAYAMA Takashi

Abstract

Households will purchase more items than usual prior to a value added tax (VAT) rate increase in order to avoid taxation. Since this type of arbitrage requires resources such as shopping time and storage space, the impacts of tax increases vary across households, which has brought distributional effects in the short-run. Using the case of a consumption tax rate increase in Japan in 1997, we show that households who are non-working, with non-working spouses and residing in larger houses, benefited from more arbitrage. To minimize short-run economic disturbances, step-by-step increases would be useful.

Suggested Citation

  • David CASHIN & UNAYAMA Takashi, 2012. "Short-run Distributional Effects of VAT Rate Change: Evidence from a consumption tax rate increase in Japan," Discussion papers 12029, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:12029
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    References listed on IDEAS

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    7. Christopher L. House & Matthew D. Shapiro, 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation," American Economic Review, American Economic Association, vol. 98(3), pages 737-768, June.
    8. David CASHIN & UNAYAMA Takashi, 2011. "The Intertemporal Substitution and Income Effects of a VAT Rate Increase: Evidence from Japan," Discussion papers 11045, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. Jana Stavjaňová, 2014. "Value Added Tax Gap in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 62(6), pages 1427-1436.
    2. Christopher E. Boehm, 2016. "Government Spending and Durable Goods," CESifo Working Paper Series 6244, CESifo.
    3. Wenbin Wu, 2022. "Sales of Durable Goods and the Real Effects of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 80-92, January.
    4. Thomas Crossley & Hamish Low & Cath Sleeman, 2014. "Using a temporary indirect tax cut as a fiscal stimulus: evidence from the UK," IFS Working Papers W14/16, Institute for Fiscal Studies.
    5. Yasuyuki Komaki, 2021. "Economic Effects of Change in the Value-Added Tax Rate in Europe: Implications for the Japanese Economy," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(2), pages 1-30, November.

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