1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Reforming the Tax System in Japan to Promote Fiscal Sustainability and Economic Growth

Tax reform is an urgent priority, as Japan needs as much as 5% to 6% of GDP of additional government revenue just to stabilise public debt, which has risen to 180% of GDP. In addition to raising revenue, tax reform should promote economic growth, address the deterioration in income distribution and improve the local tax system. Additional revenue should be obtained primarily by increasing the consumption tax rate, currently the lowest in the OECD area, while broadening the personal and corporate income tax bases. The corporate tax rate, now the highest in the OECD area, should be cut to promote growth, while eliminating aspects of the tax system which discourage labour supply and distort the allocation of capital. Japan should also consider introducing an Earned Income Tax Credit to promote equity. The local tax system should be simplified, increasing reliance on existing taxes on property, income and consumption.

English

Keywords: personal income tax, property tax, local taxes, tax reform, female employment, tax expenditures, Japanese tax system, labour tax wedge, earned income tax credit, participation rates, corporate income tax, consumption tax, tax progressivity
JEL: H20: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenue: General; H22: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Incidence; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies including sales and value-added (VAT)
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