Abstract

This paper presents a computable general equilibrium (CGE) framework to numerically examine the effect of tax and subsidy policies on the medical service sector and the pharmaceutical industry. The generalized framework with the latest Japanese input-output table of year 2005 with 108 different production sectors provides the following results: A welfare gain is aproximately 97,402 million yen when the subsidy rate of the sector of private hospitals and the medical analyzing industry increases by 10 percent if the government budget is not consiered explicitly, while the same policy reversely induces aproximately a 54,256 million yen welfare loss if the government nances the shortage caused by the policy change by a non-distionary income tax on individuals. Furthermore, the effect of tax and subsidy policies on individual medical sectors differs, while the high dependency of the pharmaceutical industry with other medical sectors can be found. In particular, the pharmaceutical industry is most better off not by a decrease in its own production tax rate but by a decrease in the production tax rate of the sector of private hospitals and the medical sample analyzing industry.