Japanese voters say no to tax hike

Kan’s ‘honest’ talk of tax hike backfires in upper house election

“As Prime Minister Naoto Kan’s Democratic Party of Japan suffered a defeat in the upper house election on Sunday, no one has doubted that the result was caused by his favoring a raise in the sales tax in order to help restore the country’s fiscal health.”

How will Japan pay down its enormous public debts with stagnant exports and declining domestic consumption?

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3 Comments »

  1. Tschäff said

    When a country owns their own printing press, why do they tax? Short answer: to prevent you from spending, thereby controlling aggregate demand. Japan as you pointed out has insufficient aggregate demand, therefore it has not reason to tax to prevent inflation. It has other reasons like sin taxes or create a demand for the national currency, but not to pay down the deficit. It has zero need to until inflationary pressure show up, which they couldn’t be farther from.

    The NY fed chairman understood this back in 1946: http://home.hiwaay.net/~becraft/RUMLTAXES.html

  2. Scott said

    Tschaff,
    Thanks for the comment. I agree that implementing tax increases will have a negative effect on aggregate demand. Japan’s economic policies post WWII have always subsidized the export sector at the expense of domestic consumers’ standard of living. So increasing taxes would be a logical continuation of this policy. It would be shifting funds from the consumer to essentially cover debts incurred propping up the industrial sector.

    This highlights the trap Japan is in; with export markets stagnant the only way to deal with the burden of national debt is to use the printing press, so to speak.

  3. Tschäff said

    Just out of curiosity, what operationally does printing money mean?

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