Modified Ruffer Curve Theory
Summary
If corporate tax is also changed, it is necessary to change the model from “revised raffer curve for income tax only” to “combined tax system model of income tax and corporate tax”.
It can be modified as follows.
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Revised white paper
Modified raffer curve model v2.0
- Simulation of the two-peak type tax revenue structure that fluctuates income tax and corporate tax -
- A summary
The traditional ruffer curve is an inverted U-shaped model that shows the relationship between a single tax rate and tax revenue.
However, in the actual tax system, multiple taxes such as income tax, corporate tax, and consumption tax affect economic activities.
In this model,
-
Income tax (progressive taxation)
-
Corporate tax (proportional tax rate)
Analyze the tax revenue structure when consumption tax and social insurance premiums are fixed as a variable factor.
Hypothesis:
The way to reduce the tax rate and expand the GDP, and
On both sides of the route to maintain a high tax rate and apply a high tax rate,
There is a possibility that there is a close tax revenue level.
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- A precondition
Fixed tax
A consumption tax
Tax rate: 10%
Taxable: 60% of GDP
Contribution to tax revenue:
GDP x 6%
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Social insurance premiums
Burden rate: 9%
Target: 50% of GDP
Contribution to tax revenue:
GDP x 4.5%
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Variable tax
Income tax
7 levels of progress
5%
10%
20%
23%
33%
40%
45%
Calculated at the effective tax rate.
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Corporation tax
Fluctuation range:
10% to 23.2%
Taxable target:
15% of GDP
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- Tax revenue model
Total tax revenue R
= GDP x
(Consumption tax burden rate
-
Social insurance burden rate
-
Income tax burden rate
+Corporate tax burden rate)
Formula:
R=
GDP x
(0.105
+0.5ti
+0.15tc)
※
Ti = effective income tax rate
Tc=corporate tax rate
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- GDP reaction model
The impact on economic activities due to the increase in tax burden,
GDP = 750 - 12ti - 4tc
Assume that.
Income tax has a large impact on labor supply and consumption, so the coefficient is 12.
Corporate tax is a factor of 4 as an impact on investment and corporate activities.
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- Simulation
Peak A: Growth-oriented model
Income tax:
Effective 8.5%
Corporate tax:
10%
GDP:
750 − (12×8.5)− (4×10)
=608 trillion yen
Tax revenue coefficient:
0.105+4.25%+1.5%
=15.75%
Tax revenue:
608 x 15.75%
= about 95.8 trillion yen
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B Peak: High Burden Model
Income tax:
Effective 21.3%
Corporate tax:
23.2%
GDP:
750 − (12×21.3) − (4×23.2)
=401 trillion yen
Tax revenue coefficient:
0.105+10.65%+3.48%
=24.63%
Tax revenue:
401×24.63%
= about 98.8 trillion yen
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- Comparison of results
A peak Peak B
Effective income tax rate 8.5% 21.3%
Corporate tax rate 10% 23.2%
GDP 608 trillion yen 401 trillion yen
Total tax revenue 95.8 trillion yen 98.8 trillion yen
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- Result
Including corporate tax,
-
Low tax rate and high GDP type
-
High tax rate and low GDP type
In both, the tax revenue resulted in a close level.
This is,
“If you raise the tax rate, tax revenue will increase proportionally”
It is not a simple model,
The decline in economic scale due to rising tax rates and
Depending on the balance of economic expansion due to lower tax rates,
It shows the possibility of multiple tax balance points.
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However, when changing corporate tax, an important part of the model is how to include “corporate profits, investment, overseas transfer, and spillover to wages” in the GDP function rather than the corporate tax rate itself.
In this v2.0, it will be developed into a two-variate raffer curve (equivalence line model) of income tax + corporate tax.
