Effects of deductions on the tax burden reduction and the redistribution of the income and resident taxes

Abstract

The status of the deductions in Japan’s income and resident tax systems is an important policy issue. To analyze this issue, it is essential to have an evidence-based understanding of the situation regarding the effect of deductions on the tax burden reduction and income redistribution. To this end, we use household microdata from the National Survey of Family Income and Expenditure during 1994–2014 to conduct a quantitative evaluation of the burden reduction and redistribution effects of deductions over a 20-year period. Initially, the higher the income group, the higher the burden reduction effect of the deductions (ratio of deductions to gross income). However, the advantageous treatment of the higher income group has been decreasing annually and, recently, the burden reduction effect has reached a proportional structure. Although the system changes in deductions have decreased the tax burden effect due to deductions, these changes have contributed to weakening the effect of increasing the Gini coefficient.