CIRJE-F-912 "Intensive Margins, Extensive Margins, and Spousal Allowances in the Japanese System of Personal Income Taxes: A Discrete Choice Analysis"
Author Name

Bessho, Shun-ichiro and Masayoshi Hayashi

Date December 2013
Full Paper   PDF file
Remarks  Revised in February 2014 and July 2014; Subsequently published in Journal of the Japanese and International Economies 34, 162-178, 2014.

This study explores the effects of spousal allowances (SAs) in the Japanese system of personal income taxes, using the micro-simulation method based on the discrete choice model of labor supply. Our simulations show that the complete abolishment of SAs would increase the average annual working hours of all wives by 1.6% only, which is smaller than previous findings in the Japanese literature. If we focus on households benefiting from SAs, the rate of increase in the wife's working hours is even smaller (.1%). In addition, one particular case of SA reduction leads to a decrease in the labor supply of wives. We argue that these unexpected results are due to our explicit consideration of the fixed cost of labor market participations, which has been previously ignored in the Japanese studies.