Re-examination of Reliability and Validity of the 'National Burden Ratio' as the Economic-policy Index

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1.Reliability and validity of the so-called 'national burden ratio' (the ratio of taxes and social security contributions to national income) are deteriorated, in the existing calculation method of the ratio, mainly due to inconsistent treatments of indirect taxes. First, in spite of including indirect taxes in national burden(numerator), these are excluded in national income at factor cost(denominator). In consequence the ratio is simply overestimated in comparison with using national income at market price including indirect taxes as denominator. Second, though the system of taxation and the system of national accounts are considerably different in defining indirect taxes, the former definition is adopted in calculating national burden Therefore, in the calculation the ratio, national income at market price and the SNA's definition of indirect taxes should be consistently adopted to improve reliability and validity of the economic-policy index.2.In definition of the so-called 'latent … More national burden ratio' as a proxy-index of present value of 'national burden ratio', budget deficits ratio of the general government are added to the national burden ratio. However a portion of budget deficits equivalent to public-works(productive-purpose) debts in legislative terms or the excess of investments over savings in capital-account of general government in economic terms should be excluded, because it is supposed to have tangible security such as immovable and financial assets.3.An impact of relations between taxation and social security upon the national burden ratio depends on tax-treatment of the social security benefits and burdens(contributions), which is basically classified into three types : tax-deduction of contributions, full-taxation, of benefits, and tax-exemption of benefits. Among them, in terms of an impact of raising the ratio, tax-deduction of contributions represented by the U.S has the weakest impact, and full-taxation of benefits represented by Nordic countries has the strongest impact. This conclusion suggests that if taxation of social security benefits is strengthened in Japan on the ground of raising revenue and/or improving fairness, the substantial rise in the national burden ratio will be inevitable.4.In view of the substantial rise in the national burden ratio mentioned above, the target index of economic-policy which should be controlled is not the national burden ratio, but the ratio of economic burden(tax burden and social security contribution on labor and capital contributing directly to productive economic activities). Less