Consumption and tax policy in Japan during the 1990s: Evidence from household data.

This dissertation aims to empirically investigate Japanese consumption and tax cuts administered in the 1990s, taking advantage of a rich household data set. First, this thesis examines the response of consumption to the shopping coupon program administered in 1999. The estimates suggest that the MPC (Marginal Propensity to Consume) on impact out of the extra income provided by the coupons ranged between 0.3 and 0.4 in the first month the coupons were distributed. However, families that received coupons spent less in subsequent months and the net effect of the entire program was negligible. The next chapter picks up the 1998 tax cuts undertaken by the Japanese government. The estimates indicate that consumers responded to the 1998 tax cut with an implied MPC of 0.6 on impact, stimulating services consumption, but that households spent less in subsequent months. As in the coupon program, the net effect was also negligible. The last chapter explores the relationship between income variability and consumption in the 1990s in Japan to test the full consumption insurance hypothesis and to quantify the sources of insurance. The hypothesis is strongly rejected for both total consumption and consumption by type of goods, which implies that Japanese households fail to smooth consumption. However, the deviation from full insurance is small.PhDEconomicsSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/123281/2/3068965.pd