Optimal Commodity Taxation in the Presence of Tourists

Abstract

This paper explores empirically whether Japanese consumers became more prudent in the second half of the 1990s, a decade in which Japan registered historically low economic growth. Employing the methodology developed by Dynan (1993), this study uses micro-level data from the Family Savings Survey and the Family Income and Expenditure Survey to estimate the coefficient of prudence for Japanese households in the second half of the 1990s. The estimates reveal that the coefficient of prudence is positive and statistically significant in the 1998–1999 period. The obtained value for the coefficient of prudence is four, which is much higher than that estimated for US households (not significantly different from zero) or UK households (around 2). The estimated coefficient for young households is higher still, which is consistent with simulation studies conducted by Gourinchas & Parker (2002) showing that precaution is the most important saving motive for younger households.