Wednesday, October 30, 2019

Will Japan's consumption tax hike fix its fiscal woes? — Masahiko Takeda UPDATED

Influential pundits have argued that under the current situation there is no need for the government to worry about fiscal sustainability. They have found support in the proponents of so-called modern monetary theory, who have cited Japan as real-world proof of their heterodox doctrine. Even some mainstream economists, including Olivier Blanchard, have advocated for fiscal activism in Japan and argued against the consumption tax hike. An important basis of their argument is the absence of inflation and the resulting very low interest rates. Still, most mainstream academic economists in Japan are undaunted, sticking to their guns of prudent fiscal management.
Unfortunately, discussions of sustainability, including fiscal sustainability, are intrinsically vague because they involve the future. Since the ability to forecast economic conditions over the medium to long term is woefully weak, it is impossible to settle the debate one way or the other. Without taking sides, however, there remain proposals which should receive no objections from both sides....
East Asia Forum
Will Japan's consumption tax hike fix its fiscal woes?
Masahiko Takeda | Professor of Economics (retired) at the School of International and Public Policy, Hitotsubashi University, Tokyo

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