Has the Government Lowered the Hours Worked? Evidence from Japan

Ko, Jun-Hyung (2011): Has the Government Lowered the Hours Worked? Evidence from Japan.

Abstract

Why does the hours worked show a decreasing pattern in the postwar Japanese economy? This paper answers this question in the background of the changing pattern of government spending and tax-imposing behaviors. We construct and simulate a standard optimal growth model with the following key features: various taxes and subsidies. Our main findings are as follows. First, we quantitatively find that the increasing pattern of taxes on labor income played a crucial role in influencing the declining pattern of hours worked in Japan. Second, consumption tax and subsidy have a limited role in explaining the labor supply because they cancel each other out. Third, pension benefit may influence the retirement of the people in their sixties but has a minor effect on the hours worked. Fourth, the legal reduction in the workweek length in 1990 can explain the low level of the hours worked since 1990. Fifth, subsistence consumption can account for the slope of hours worked but cannot explain the long-run level.

• Item Type: MPRA Paper
• Language: English
• Keywords: marginal tax rate, subsidy, hours worked, pension benefit
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity

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