proem

Business, Management and Accounting

2 years ago

Japanese Consumption Boost from Tax Cuts May Be Misguided, Study Finds

Risky Habits and the Marginal Propensity to Consume Output of Permanent Income, or, How Much Would a Permanent Tax Cut Boost Japanese Consumption?

D. Carroll Christopher

Paper Summary

Business, Management and Accounting

2 years ago

Japanese Consumption Boost from Tax Cuts May Be Misguided, Study Finds

International Economic Journal

Risky Habits and the Marginal Propensity to Consume Output of Permanent Income, or, How Much Would a Permanent Tax Cut Boost Japanese Consumption?

D. Carroll Christopher

Paper Summary

Habit formation in consumption can explain economic puzzles like saving rates and equity premiums. Strong habits mean people save more after a tax cut than expected. A study suggests that in Japan, a permanent tax cut may only increase spending by 30 percent, not as much as hoped.