ESRI Discussion Paper Series No.366 Do the Self-Employed Underreport Their Income? Evidence from Japanese Panel Data

Takeshi Niizeki
Economic and Social Research Institute, Cabinet Office, Japan; Faculty of Law and Letters, Ehime University
Junya Hamaaki
Economic and Social Research Institute, Cabinet Office, Japan; Faculty of Economics, Hosei University

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.


Structure of the whole text(PDF-Format 1 File)

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    • 1. Introduction
      page2
    • 2. Institutional background and estimation strategy
      page4
    • 3. Data
      page8
    • 4. Estimation results
      page10
    • 5. Robustness checks
      page12
    • 6. Considerations on biases in 1-k
      page19
    • 7. Conclusion
      page20
    • References
      page21
    • Appendix
      page23