http://online.wsj.com/articles/abe-adviser-calls-for-more-economic-stimulus-for-japan-1416242064?KEYWORDS=Japan+Scrambles+to+Rescue+Economy
What do you think?? This would be a macroeconomic policy argument.. is more spending or prudence needed? It seems strange to me that the sales tax is being raised.
I am also surprised that a sales tax was implemented amidst a recovery plan since the policy is contractionary and will not aid in boosting the economy. However I do agree that further tax increases should be put off until the economy has resumed growth. Yes Japan's debt at twice the size of its economy is large and worrisome, but I think that resuming growth takes precedence over lowering the debt. If growth is not achieved than it will become increasingly harder to raise money to fund the debt and there was no hinting that the debt is causing Japan any immediate problems. I like the idea of raising the sales tax because it serves to tax consumption but think that Japan would benefit from holding off on implementing any further increases.
ReplyDeleteOn a side note I found it interesting that Abe claims that he started a "virtuous cycle" in the economy which is the same term used by Robert Reich when discussing how income inequality affects our economy.
I agree with Megan McArdle that Japan's lackluster growth shows the limits of macroeconomic policy. Sure Japan raised its sales tax, but that was along with some other spending stimulus and exceptional monetary expansion. All of that effort has staved off deflation and boosted exports, but it won't bring a growth miracle. Japan's unemployment rate has been below 4% since the start of 2014 and it doesn't seem to be exploding now. How much can stimulus really bring growth with such little labor market slack?
ReplyDeleteI think Japan's real problems are deeper and structural. The country is famously hostile to young immigrants and yet has a rapidly aging population. Abe has been very slow with his promised supply side reforms.
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