Taxation of Interest Income in an Aging Japan: Simulation Analysis Using a Life-Cycle General Equilibrium Model

Abstract

This chapter presents a detailed description of the life-cycle general equilibrium simulation model employed throughout this book, and provides a technical discussion of the algorithm used to find the equilibrium of the simulation model. This chapter addresses the problem of choosing among three tax bases, namely, labor income, interest income, and consumption, in terms of efficiency. It also investigates the effects of an interest income tax on household behavior and capital formation.

This chapter is based on published material, Okamoto (1996). An earlier version of this chapter was presented at the 1995 Meeting of the Japan Association of Economics and Econometrics (Seibu-bukai) at Fukuoka University. The author is grateful for insightful comments and suggestions by Professors Toshiaki Tachibanaki, Kazuo Yoshida, and Masahiro Hidaka, and from the seminar participants. The author acknowledges the financial support from Research Fellowships of the Japan Society for the Promotion of Science for Young Scientists.