Stiglitz to Abe: Don't Raise Japan's Sales Tax, Stimulate Growth

  • Nobel-Prize winner says other levies could support investment
  • Abe has to make decision on planned levy increase due in 2017

Joseph Stiglitz.

Photographer: Simon Dawson/Bloomberg

Nobel-prize winner Joseph Stiglitz urged Japanese Prime Minister Shinzo Abe not to raise the nation’s sales tax next year, instead encouraging the premier to consider other forms of taxation that could stimulate the world’s third-largest economy.

"A consumption tax increase now is going in the wrong direction," the professor of economics at Columbia University told reporters in Tokyo on Wednesday after a meeting with the prime minister, Bank of Japan Governor Haruhiko Kuroda and key cabinet members and advisers. "A few years ago, no one would have anticipated that the global economy would be as weak as it is today."

Stiglitz, 73, was the lone non-public official at the first of five or so panels on the global economy, billed as Japan’s preparations for the Group of Seven nations summit in Japan in May. Abe and his team will meet Thursday with Dale Jorgenson, a Harvard University professor who in the U.S. has advocated taxing energy use, and with former BOJ Deputy Governor Kazumasa Iwata, a prominent advocate of reflation and aggressive monetary stimulus. Another laureate, Paul Krugman, has been invited to speak on March 22.

Japan was supposed to have increased the consumption levy to 10 percent from 8 percent last October, but Abe in November 2014 became convinced the economy couldn’t stand the hike. He may be thinking twice about the current plan to raise the tax in April 2017 as influential economists join the tide of public opinion for another postponement. Abe may use the counsel of these overseas economists to make a case for a delay -- especially given that the economy contracted in the final three months of 2015.

Stiglitz, who counseled against fiscal austerity in late-1990s Asia and in Europe in recent years, said there were "some ways of raising taxes that can stimulate the economy, like a carbon tax, because people then would have to invest." He also said inheritance taxes could provide a boost while reducing inequality, and urged the consideration of a structure that lowers taxes on companies that invest, but raises them on those that don’t.

‘Wonderful’ Meeting

Etsuro Honda, an adviser to Abe who has also called for a delay or even a freeze on the sales levy, also attended. He told reporters that he joined the prime minister and other advisers for a chat with Stiglitz in Abe’s chambers after the meeting, saying the gathering was "wonderful and fulfilling."

Stiglitz also urged the G-7 to take a coordinated approach to stimulating demand, saying that fiscal action was the best course of action.

"The implication of that is that this is a time to stimulate fiscally; that monetary policy has reached the limits of what it can do," he said. "Japan has had a very strong monetary policy and stimulated the economy, but here are limits. Therefore the focus should be on fiscal policy.” 

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