Income Distribution and Tax Reforms in Aging Japan

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  • 所得分布と高齢化社会における税制改革
  • ショトク ブンプ ト コウレイカ シャカイ ニ オケル ゼイセイ カイカク

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Abstract

This paper examines the effects of changes in the variance of income distribution on both capital accumulation and social welfare in Japan, the society with an aging population. To analyze the problem, we adopt a simulation approach for an extended life-cycle general equilibrium model of overlapping generations with continuous income distribution. The simulation results indicate that the changes in the variance affect economic variables under a progressive tax scheme but they do not under a proportional tax scheme. The results also show that social welfare greatly increases as the variance shrinks. Therefore, the recent shift in Japan, where the taxation system has tended in effect to become flat, may cause a significant damage to social welfare.

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