Japanese ecnomists suggest raising the VAT for earthquake and tsunami recovery

The three principle for the earthquake recovery

professor Takatoshi Ito university of Tokyo, professor Motoshige Ito university of Tokyo and some economists*

For recovery of the earthquake East Japan, especially in meeting the government’s recovery plan has been much discussion. Different from when the Great Hanshin Earthquake, we should be back to the streets of the recovery to draw a new city building in the long term instead of rebuild, it seems to be some consensus. Once that concrete plan, however, many conflicting opinions, the direction is not always clear. It should be leading the recovery of a local goverment What a local well known. whether consider the recovery of regional policies beyond the boundaries of the Cities. What to deal with the problem of adjusting the rights of individuals and corporations.　How should the cost of recovery who do pay. How do I go together to discuss these chaotic. We appeal to the principle of three pillars of discussion want to provide.

1st. Inequity of intergeneration
In Japan, the progress of aging,　the net income received by each generation from the social security system.
In the Future, it is clear that future generations continue to decreases net income. This is a design error in the system that was beyond the demographic changes are expected. Correction of intergenerational equity is important generational accounting. Thus, at least more, such policies contribute to intergenerational inequity is taken not.

2nd. Using Market
In the 2000s, So-called “gap” has become popular in the debate, Allocation of resources through price will determine the ”market mechanism” has caused some distrust. The trend seems to be increased further by the global economic turmoil due to the collapse of Lehman Brothers. However, according to the effort and efficient social and economic systems to achieve the distribution allocation of resources, there is no better than the market. By effective use of limited resources, the social pie is expanding, more rich life can be achieved. If we forget this proposition, the Japanese economy will suffer an economic loss of secondary disaster after the earthquake.
Of course, we don’t say “market is almighty”. “In exists economic externalities, government intervention is needed” has taught in textbooks of economics. For example, if the expected benefits of integration would have enabled, the government can induce resource allocation through city plans.

3rd. Sustainability
On the forecast of the 21st century global economy, which assumes the environment and resource constraints.　Considering the Japanese economy further, must be considered the worst fiscal condition and the decline of the population in advanced countries. Less painful in the short term policy, May threaten the fiscal sustainability and the environment contrary to the long term. In choosing a policy, to consider the principle that only the current generation of profit is not allowed, even in the discussion will be important to recovering after the earthquake. Based on these, way of costs, power shortages, future urban development, to mention three points to think about this.

1.Don’t pay the future generations
the recovery cost of houses, factories, social infrastructure Caused by the earthquake and tsunami, such as direct damage of various assets is estimated that 16-25 trillion yen by the Cabinet Office. The amount is almost double the Kobe earthquake. As all of the assets to rebuilding lost by damage, the burden of the government sector is expected to be more than 10 trillion yen. On the other hand, to recover over the next three years, is expected to be boosted by the 1-2%GDP growth and investment expansion. And adding to the cost of recovery and the compensation for Fukushima nuclear power plant around people, the cost of safety nuclear power plant can’t be burden only by TEPCO, would need total government spending of roughly 15-20 trillion yen. How to use government spending, it must devise a method of financing, there are risk of run into a low growth economy again, risk of financial catastrophe because it was too costly recovery.

In the financing, up to a massive long-term government debt in 190% of GDP has already, it is necessary to carefully consider the financing. The financial resources, changes in expenditure, compression of expenditure, sell state assets, issuance of government bonds, taxes, etc. can be considered. Of course, to compress and cut pork-barrel , wasteful spending,　except for the abolition of child allowance(2 trillion yen), can’t expect much in amount. The problem is” issuance of government bonds or tax increases”

In funding by issuing additional bonds to the total amount of 15-20 trillion yen for additional spending, the choice to be repaid over a future time, if the population increases, a high rate of economic growth, low debt-GDP ratio in an economy that is it correct. Unfortunately, the current　Japanese economy, these three conditions are not suitable.
“Recovery bonds” issued to add, after 10 years to repay, it is people of relatively high-income baby boomers become pensioners and retired to escape the burden, have shifted to enter the labor market in the next 10 years the burden to the relatively low-income young people. Working-age population (20-64 years old), during the decade from 2011 to2021 will decreased more than 700 million people from 7500 to 6760 million people, about 10%. In 10　years, repayment of costs per person (taxes) is a 10% increase due to　in　population factors. So unfair to future generations are working after 10 years. ”Recovery bonds” idea is a postponement of burden, seriously lack of intergenerational fairness. In other words, ” taxes, or government bonds,” it’s wrong the option. The correct options is “to pay the recovery financial resources either working generation or future generations” in the low growth and declining population, should not impose a burden on the next generation.

There are many ways to raise taxes, to help the earthquake and tsunami sufferers by the whole the public, nationwide, the various ages, the various professions, we need to get a lighter and wide burden(taxes) the people. Need to a little bit reduce the level of all the people lifestyle.　Concretely, raising the consumption tax rate, additional tax as a national taxes on the fixed property tax, income　tax enhancements, special fixed-rate taxes on income tax, corporate tax reduction postponed for one year can be considered.
Consumption tax will be decreased to less labor and capital, willingness to produce, is slight impact on economic growth. Raising the consumption tax rate from 5 to 10 percent, as doubling the current the consumption tax revenues, would increase annual revenue of about \ 10 trillion.
The consumption tax hike, there is criticism that lead to recession will be declining the willingness of consumption. However, this criticism is wrong for two reasons. First, government investment and private investment are expected to increase investment for　recovery next year.　Even if declining consumption, aggregate demand will be offset by increased investment, does not lead to a recession.　Second, after raising the consumption tax rate, which is known to be drop in consumption. However, it would recover in a few months.
Other hand, before the scheduled hike leads to rush demand centered on durable goods, expand the economy ahead of schedule for full-fledged investment expansion. Taxation on Corporate income and labor income remain longer in effect　lowering is potential growth rate.
It was lost a lot of fixed assets in the Tohoku region. In order to recover the whole　nation to bear it, to levy additional tax on fixed property tax from corporations　and individuals to hold assets in the nation to assist victims is logical. However, fixed property tax are local taxes, additional tax is a national taxes and should be. (Other hand, there is land prices tax as for the land national taxes, fixed property tax as much as expanding the tax rate, and may be expressed.) Nationwide, fixed property tax, city planning tax is a total of more than 8 trillion yen. The 10% additional tax (or Augmented ”land prices tax”)will be increased revenue of 8,000 billion yen.
15 years of deflation, increasing the proportion of workers below the minimum　taxable income by younger workers to replace older workers. By supporting the whole nation earthquake disaster and national security concepts is important to pay　income tax so is more people may be small amount. Would suggest to lower the minimum taxable income. Other hand on high-income earner, so get one more burden, ask for fixed-rate hike. By these income tax reform, expected to increase about 1.3 trillion yen in revenue by increasing 10 percent the current income tax revenues. If financial resources is still insufficient, then the corporate tax cut had been determined, the burden on companies seeking to extend on two years By tax cuts. By stopping the tax cuts, revenues will increase about 1 trillion yen. However, the effective corporate tax rate in Japan is extraordinarily high by international standards, given the response to globalization, the postponement of corporate tax cuts should be made only if financial resources is insufficient in　other taxes.
These tax increases will increase annual revenue of about 15.5 trillion yen. Be carried out for two years, the recover financial resources can be secured sufficiently. Regressive, neutral, progressive, a combination of all taxes. Collectively the ” recovery solidarity tax” Let’s call it.
Of course tax increases is unpopular policies. However, it is necessary to recover from the Great disaster happened in declining population and slow growth Japan, not impose a burden on future generations, that is says to persuade the leader of a country.

(The rest is omitted.)

*cosponsor

Takatoshi Ito (University of Tokyo)
Motoshige Ito (University of Tokyo)
Shujiro Urata (Waseda University)
Makoto Saitoh (Hitotsubashi University)
Etsuro Shioji (Hitotsubashi University)
Takero Doi (Keio University)
Yoshio Higuchi (Keio University)
Mitsuhiro Fukao (Keio University)
Naohiro Yashio (ICU)
Hiroshi Yoshikawa (University of Tokyo)

Kosuke Aoki (University of Tokyo)
Reiko Aoki (Hitotsubashi University)
Hideo Akabayashi (Keio University)
Mitsuyo Andoh (Keio University)
Masako Ii (Hitotsubashi University)
Toshiaki Iiduka (University of Tokyo)
Kazuhito Ikeo (Keio University)
Masako Ikefuji (Osaka University)
Jota Ishikawa (Hitotsubashi University)
Hidehiko Ichimura (University of Tokyo)
Keiko Ito (Sensyu University)
Katsuhito Iwai (ICU)
Tokuo Iwasako (Hitotsubashi University)
Kentaro Iwatsubo (Kobe University)
Takashi Unayama (Kobe University)
Yoichi Okita (GRIPS)
Izumi Ohno (GRIPS)
Kazuhiko Ohbashi (Hitotsubashi University)
Hiroshi Ohbashi (University of Tokyo)
Tetsuji Okazaki (University of Tokyo)
Eiji Ogawa (Hitotsubashi University)
Kazuo Ogawa (Osaka University)
Naohiro Ogawa (Nihon University)
Kunio Okina (Kyoto University)
Yuri Okina (The Japan Research Institute,Ltd)
Hiroko Okudaira (Okayama University)
Masahiro Okuno (Ryutsu Keizai University)
Takashi Oshio (Hitotsubashi University)
Seki Obata (Keio University)
Sahoko Kaji (Keio University)
Etsuko Katsu (Meiji University)
Yoshitsugu Kanemoto (GRIPS)
Daiji Kawaguchi (Hitotsubashi University)
Kentaro Kawasaki (Toyo University)
Satoshi Kawanishi (Sophia University)
Yukinobu Kitamura (Hitotsubashi University)
Fukunari Kimura (Keio University)
Kozo Kiyota (Yokohama national University)
Nobuhiro Kiyotaki (Princeton University)
Shigeki Kunieda (Hitotsubashi University)
Masaharu Kuhara (Kyusyu University)
Takako Greve (Keio University)
Takashi Kurosaki (Hitotsubashi University)
Sachiko Kuroda (Waseda University)
Yuji Genda (University of Tokyo)
Satoshi Koibushi (Chuo University)
Keiichiro Kobayashi (Hitotsubashi University)
Takao Komine (Hosei University)
Haruo Kondoh (Seinan Gakuin University)
Tatsuyoshi Saijo (Osaka University)
Yukie Sakuragawa (Atomi University)
Masaya Sakuragawa (Keio University)
Yuri Sasaki (University of Meiji Gakuin)
Kiyotaka Sato (Yokohama National University)
Yasuhiro Sato (Osaka University)
Yasuyuki Sawada (University of Tokyo)
Junko Shimizu (Sensyu University)
Naoko Shinkai (Nagoya University)
Kotaro Suzuki (Waseda University)
Atsushi Seike (Keio University)
Miki Seko (Keio University)
Shinji Takagi (Osaka University)
Noriyuki Takayama (Hitotsubashi University)
Fumiko Takeda (University of Tokyo)
Eiji Tajika (Hitotsubashi University)
Takatoshi Tabuchi (University of Tokyo)
Akiko Tamura (Hosei University)
Teizo Taya (Rikkyo University)
Ushio Cyoujou (Keio University)
Yoshiro Tsutsui (Osaka University)
Tsuneki Atsushi (Osaka University)
Masao Tsuri (Okayama University)
Daigo Nakata (RIETI)
Hiroshi Nakamura (Keio University)
Daisuyke Nagakura (Keio University)
Takashi Takada (Kobe University)
Fumio Hayashi (Hitotsubashi University)
Kimie Harada (Chuo University)
Yukiko Fukagawa (Waseda University)
Shinichi Fukuda (University of Tokyo)
Mariko Fujii (University of Tokyo)
Masahisa Fujita (RIETI)
Takeo Hoshi (UCSD)
Eiji Hosoda (Keio University)
Kaoru Hosono (Gakushuin University)
Nobuaki Hori (Kyusyu University)
Yuzo Honda (Kansai University)
Masayoshi Honma (University of Tokyo)
Yasuhiro Maehara (Hitotsubashi University)
Akihiko Matsui (University of Tokyo)
Isao Miura (Kyusyu University)
Fumiharu Mieno (Kobe University)
Kazuo Mino (Kyoto University)
Kimio Morimune (Sugiyama University)
Noriyuki Yanagawa (University of Tokyo)
Tomoyoshi Yabu (Keio University)
Hidefumi Yamagami (Kinki University)
Nobuyoshi Yamaori (Nagaoya University)
Naoyuki Yoshino (Keio University)
Ryuhei Wakasugi (Kyoto University)
Kenji Wada (Keio University)
Satoshi Watanabe (Hitotsubashi University)

（15.6.2011)

original paper

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