The Social Cost of Public Funds: The Case of Japanese Progressive Income Taxation.

This paper operationalizes Dahlby’s (1998) theoretical analysis on the social marginal cost of public funds (SMCF) with microdata on Japanese prime-age males. Our exercise, however, is more than an application. First, we derive the formula for the SMCF that differentiates every individual. Second, we estimate the labour supply function of Japanese prime-age males which no previous studies have appropriately considered. Third, taking advantages of our formula, we also calculate the SMCF for sub-groups among our samples. We provide a region-specific SMCF and, following Dahlby and Wilson (1994), discuss the desirable direction of regional transfers. We also present an ‘individual’ MCF.