Quantile Analysis of Redistributive Effects of Personal Income Tax Reforms: Evidence from Japan in the 2010s
This paper examines how a sequence of personal income tax reforms implemented in Japan during the 2010s affected the distribution of equivalent household disposable income and the redistributive role of the tax system. Using microdata from the 2009–2021 waves of the Japan Household Panel Survey (JHPS/KHPS), we analyze personal income taxes and social security contributions to construct equivalent household disposable income by a microsimulation and estimate average and distributional effects using weighted difference-in-differences, together with conditional and unconditional quantile difference-in-differences. We complement these estimates with an event-study analysis to assess the plausibility of the parallel-trends assumption.
We find that redistributive effects vary systematically with policy design and the targeted income range. Benefit expansions and tax-relief reforms in 2011 and 2018 increased equivalent household disposable income among lower- and middle-income households, whereas reforms that reduced or capped deductions in 2013, 2016, 2017, and 2020 lowered disposable income at the top. The 2014 abolition of the reduced tax rate on dividends and capital gains increased disposable income mainly among middle- and upper-income groups and did not materially alter the overall distribution. The 2020 reform—which raised the Basic Exemption while reducing the Deduction for Salary Income and the Deduction for Public and Other Pensions—reduced disposable income at the top and modestly increased it at the bottom, compressing the income distribution. Overall, the combination of deduction cuts and benefit expansions strengthened the progressivity of Japan’s personal income tax system.
