Do the self-employed underreport their income? Evidence from Japanese panel data |
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| Institution: | 1. Chiba University, 1-33 Yayoi-cho, Inage-ku, Chiba-shi, Chiba 263-8522, Japan;2. Hosei University, 4342 Aihara-machi, Machida-shi, Tokyo 194-0298, Japan;3. Economic and Social Research Institute, Cabinet Office, 1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan;1. Graduate School of Economics, Keio University, 2-15-45 Mita, Minato-ku, Tokyo 108-8345, Japan;2. College of Economics, Nihon University, 1-3-2 Misaki-cho, Chiyoda-ku, Tokyo 101-8360, Japan;1. UTokyo Economic Consulting Inc., 7-3-1 International Academic Research Bldg. #922 University of Tokyo, Hongo, Bunkyo-ku, Tokyo 113-0033, Japan.;2. Meiji Gakuin University, 1-2-37 Shirokanedai, Minato-ku, Tokyo 108-8636, Japan.;3. Nihon University, 1-3-2 Misakicho, Chiyoda-ku, Tokyo 101-8360, Japan, and Research Institute of Economy, Trade and Industry (RIETI), 1-3-1, 11th floor, Kasumigaseki, Chiyoda-ku, Tokyo 100-8901 Japan.;1. Tianhong Asset Management Co., Ltd. Xicheng District, Beijing 100032, China;2. Hitotsubashi Institute for Advanced Study, Hitotsubashi University, Kunitachi, Tokyo 186-8601, Japan;3. Faculty of International Social Sciences, Gakushuin University, Toshima-ku, Tokyo 171-8588, Japan |
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| Abstract: | This paper examines to what extent self-employed households underreport their income to tax authorities in Japan. To this end, we employ the so-called expenditure-based approach, which essentially compares the current expenditure of self-employed and wage earner households while controlling for their income, net worth, and household characteristics. Using Japanese household-level panel data for the period 2009?2019, we find that the self-employed possibly underreport their income by 33.0–36.4%. Our findings are also robust to the different preferences (degree of risk-loving, time discount rates, etc.), planned retirement age, and degree of measurement error in expenditure between the self-employed and wage earners. |
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