MEASURING THE BURDEN OF INDIRECT TAXATION INCLUDING CONSUMPTION TAX IN JAPAN BY INCOME GROUP

In the context of an aging population, a consumption tax was introduced in Japan as a means to secure financing for social security programs, and was raised on a number of occasions. While consumption taxes are regressive, excise taxes also place a burden on household finances. In this paper, we estimate the portion of income captured by consumption and excise taxes for different income groups, considering the proportion of the tax burden associated with excise taxes. The results indicate that regressivity is present for both consumption and excise taxes. In particular, indirect taxes on food are considered highly regressive, giving grounds for measures aimed at reducing the tax burden on low-income earners. Accordingly, we quantify the redistributive effects of several policy patterns aimed at lessening indirect tax burdens. For taxes on food, the redistributive effects of reduced taxes, zero rates of taxation, and tax refunds were not significant. This is because these measures lower the tax burden across all income groups and do not target low-income earners only. As a result, alleviating the regressivity of indirect taxes requires social security policies closely targeted at low-income earners.