The political economy of social security funding: Why social VAT reform?

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

Recently, taxation reforms entailing a “social” valued-added tax (VAT), i.e., a social security reform shifting funding from traditional wage-based taxation to consumption taxation, have been obtaining political support in some developed countries, e.g., Japan, France, Denmark, and Germany. This paper analyzes the political economy of social security funding in an overlapping-generations economy. In particular, we consider how population aging influences the choice of wage or consumption tax financing by focusing on their differential impact on inter- and intragenerational redistribution. Our results show that population aging may drastically alter the political equilibrium: if the population growth rate is higher than the interest rate, wage taxation is the only equilibrium choice, but if it is lower, multiple equilibria are likely to emerge, in which the introduction of consumption taxation emerges as an alternative equilibrium choice.

Original languageEnglish
Title of host publicationAdvances in Japanese Business and Economics
PublisherSpringer
Pages35-66
Number of pages32
DOIs
Publication statusPublished - 2015

Publication series

NameAdvances in Japanese Business and Economics
Volume8
ISSN (Print)2197-8859
ISSN (Electronic)2197-8867

Keywords

  • Consumption tax
  • Political economy of social security
  • Structure-induced equilibrium

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Economics and Econometrics
  • Finance

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