Tax treatment of income from public pensions in Japan has been very favorable. When working, contributions are completely exempted from taxable income; and when retired, very lenient deductions are applied to the income. The purpose of this paper is to show how these deductions have resulted in unfair treatment both between young and old and among old people depending upon the amount of income coming from public pensions. A microeconomic simulation model developed by the authors is used to estimate effective tax rates and to present an alternative measure to make taxation on income from public pension more on a par with other types of income.
