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Abstract

Vol. 62, No. 4, pp. 331-341 (2011)

“Income Risk, the Median Voter, and Redistribution in Japan”
Tomoaki Yamada (School of Commerce, Meiji University)

This paper investigates the welfare effects of redistribution policy in Japan. Using a dynamic politico-economic general equilibrium model with idiosyncratic wage risks, we evaluate the welfare effects quantitatively. We show that the optimal redistributive tax rate that maximizes social average of welfare is about 15% if the labor supply is elastic. On the contrary, if citizens in the model choose a redistributive tax rate by voting, the tax rate is approximately 42%, and the welfare loss amounts to 14% measured by CEV.