Changes in Japanese income distribution

You can find a lot of neat stuff if you rifle around in Emmanuel Saez's Home Page .

Here's a paper on the evolution of income distribution in Japan: The Evolution of Income Concentration in Japan, 1885-2002: Evidence from Income Tax Statistics (a working paper by Chiaki Moriguchi and Saez, dated last August).

Look at the hit average income took during the World War, the rapid recovery after, and the convergence towards U.S. income levels:

Look at the impact on income inequality, measured by the proportion of income accuring to the top 1%, during World War II and in the early post-war years:

Moriguchi and Saez are using income tax records to estimate income to the top 95-99% and 99-100% of recipients.  The denominators - overall income - are coming from national income statistics.

What caused the decline in income concentration in the top 1%?  Moriguchi and Saez have some ideas:

WWII likely caused the drastic income de-concentration through three main channels. First, after the 1937 China Incident and the promulgation of the 1938 National General Mobilization Law, the military government implemented a set of regulations that placed tight control over landowner rights, shareholder rights, and wages (including executive compensation)... For instance, to increase food production, the government expanded its land distribution policy in 1938, and again in 1943, which encouraged tenant farmers to gain ownership of the land they cultivated. State controls on rents and land prices after 1939 also increased the value of tenancy rights vis-à-vis landowner rights...

Second, to finance the rapid military expansion, the government increased tax rates on personal and corporate incomes... As higher tax rates reduced the net returns on assets, these changes might have made it more difficult for high income rentiers to sustain their assets, further reducing their subsequent capital income.

Third, WWII resulted in a large-scale destruction of wealth, including 25% of physical capital and 668,000 civilian casualties.... In particular, repeated air raids of major cities by the U.S. air force starting in early 1945 likely had a devastating effect on the high income earners who were concentrated in the metropolitan areas.... Finally, the business income component of the top income remained largely intact during WWII, presumably because the wartime government reintroduced profit motives to induce higher outputs in strategic industries as well as in agricultural production....

Upon Japan’s surrender in August 1945, the nation was placed under the indirect governance of the Supreme Commander for the Allied Powers from 1945 to 1952. As Yazawa and Minami (1993) point out, hyperinflation in 1944-48 and postwar occupational reforms together  potentially had a large effect in equalizing the income distribution. Three powerfully redistributive measures were implemented during this period.

First, the land reform in 1947-50 mandated landlords to sell their farmlands to extenants, eliminating virtually all large- and medium-sized landowners... Second, the government  imposed extremely heavy and highly progressive property tax (zaisan zei) from 1946 to 1951... Third, under the dissolution of zaibatsu in 1946-48, not only ex- and current directors of zaibatsu firms were expelled, but also their shares were confiscated and redistributed to a large number of employees and other investors at a market price.... As a  result, these reforms likely transferred a significant amount of wealth from the high to the lower  end of income distribution. Last but not least, the hyperinflation was a final blow to the high  income earners who relied on capital income...

Despite the emphasis placed on the importance of the occupational reforms in
reducing income inequality by the preceding studies, our data show that their impact was limited to the top 0.1% income shares and was modest compared to the impact of WWII...

Comments

[deepak income tax]

Ideally, taxes on wealth should not be severe on the tax payers, even if they have lots of wealth. Instead, after the minimum slab of no taxation, the taxes on wealth percentage should increase at increments, depending on the value of wealth in dollars. Such a fairer taxation not only increases the revenue but also goes a long way in bringing down the inequality aspect as well.

[paid blogging]

I am just overwhelmed with the differences in taxation from country to country. Thanks for this informative post.