Minimum Wage, Earned income Tax Credit, Child Allowance and Basic Income in Japanese Policy

Reform

Shinji Murakami(Ritsumeikan University

Post-Doctral Felllow)

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IntroductionThe Government Changed in Japan, 2009 Some of the policies reforms are relevant to BI(basic income)Focusing on MW(minimum wage), EITC(earned income tax credit), CA(child allowance)Discussing Japanese tax reform which is related to the affordability about BI

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1. Minimum Wage1.1. Minimum wage in Japan

The process determining the regional MWs(1) national MW council : the public interest ,

employers, employees →establishing “reference's wage”(2) local MW councils→the national council has a significant on the

final decisions of local councils.

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1. Minimum Wage1.1. Minimum wage in Japan

In the negotiations of the national council→The opinions of representative of the public

interest are a decisive factor →There are always conflicts between the

representatives of employees and employers

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1. Minimum Wage1.1. Minimum wage in Japan

An industry MW is determined by the deliberation of national council

←The national council accepts the necessity of increasing specific industry MW

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1. Minimum Wage1.1. Minimum wage in Japan

January 28, 2010The Ministry of Health, Labour and WelfareThe Ministry of Economy, Trade and Industry→Setting up a task force to examine the effects of

increasing the MW→Intending the aim of immediate level is 800 yen per a hours

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1.2. Effects of increasing MW

Card and Krueger (1995) and Tachibanaki and Urakawa (2007) (in Japanese)→Advantage in increasing MW→Increasing employment, rising the working

poor's income

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1.2. Effects of increasing MW

Some studies(Neumark and Wascher (2008), Kawaguchi and Mori (2009) etc.)

→Reducing employment opportunities for less-skilled worker

→Tending reducing their earnings

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1.2. Effects of increasing MW

Negative advocate about minimum wage ：Suggesting refundable tax credit or BI Whether increasing MW is compatible with BI in the Japanese social context

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1.2. Effects of increasing MW

A central point: The level of BI or refundable tax credit and the range increasing MW

High level of BI →MW may not be necessary Low level of BI →MW could play important

roles

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1.2. Effects of increasing MW

Potential Increasing MW in Japan(cf. OECD 2007 date)→Not low rate of Japanese unemployment

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1.2. Effects of increasing MW

The high level of corporate tax in Japan→a lower rate of corporate tax →compensating the increasing minimum wages

in Japan

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1.2. Effects of increasing MW

The high level of corporate tax in Japan→a lower rate of corporate tax →compensating the increasing minimum wages

in Japan

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2. Refundable tax credit2. 1. The earned income tax credit

EITC as more modest or mini version of thenegative income tax→The Japanese tax commission , 2009→Some researcher have examined the feasibility

of EITC in Japan →EITC is characterized by workfare policy

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2. Refundable tax credit2. 1. The earned income tax credit

EITC can be interpreted as a variation of BI→EITC is conditioned on work→However, refundable income tax credit is not

necessary work Example : Child allowance(CA) started in Japan, June 1,

2010.

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2. Refundable tax credit2. 2. Child allowance

A refundable tax credit is related to child care support policy

The Democratic Party of Japan's the House of Representatives election manifest in 2009 ：

An allowance for each child up to the third grade in middle school (15 years old)

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2. Refundable tax credit2. 2. Child allowance

The Democratic party planed to make the monthly 26000 yen allowance a permanent measure

CA is without a means test →partial BI→However, the present administration plans to

give half the amount, or 13000 yen, in fiscal 2010

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2. Refundable tax credit2. 2. Child allowance

→In the newest plan, the amount of CA is added after 2011

→The added amount of CA is possible for substituting social service (ex: increasing

nursery school) →These combination is determined by the

localgovernment as administrative localization

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2. Refundable tax credit2. 2. Child allowance

CA is selected by the category⇔The variation of partial BI is a kind of negative

income tax which is selected by means-test

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3. The possibility of realizing partial basic income in Japan

Examination about the relation EITC and negative income tax in japan

→Applying to Japanese welfare policy

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3. The possibility of realizing partial basic income in Japan

The difference between and the negative income tax and BI

→The form of provision (ex-ante / ex- post), means-test

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3. The possibility of realizing partial basic income in Japan

Focusing on the similarity of synthesizing the income tax regime and subsidy policy

Relating to the computerization of tax technology and the social security number

to capture just individual revenue level

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3. The possibility of realizing partial basic income in Japan

The progressive rate of income tax flattend

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3. The possibility of realizing partial basic income in Japan

Suggesting a return to more progressive income tax and increasing rate of consumption tax.

→not just to raise revenue but to narrow theJapan's income inequality

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3. The possibility of realizing partial basic income in Japan

Suggesting a return to more progressive income tax and increasing rate of consumption tax.

→not just to raise revenue but to narrow theJapan's income inequality

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3. The possibility of realizing partial basic income in Japan

→Examining the refundable tax credit as compensating low income earner for increasing rate of consumption

→Partial BI

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4. Conclusion

There are difficult problems→The change will link to some variation of BI