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論文
AJER 05-1E
Which is better for Japanese economy in 2005, tax increases or tax cuts?
Seiji Ono
Representative, Association for Japanese Economic Recovery (AJER)
Akira Onishi
Centre for Global Modeling, Japan
By using FUGI global modeling system we compare the tax increase scenario with the tax cut scenario The model has been used by the UNCTAD Secretariat for projections of world economic change, and for policy scenario simulations, since 1998. Typical policy exercise examples have included simulations of the Asian financial crisis in 1998, the impacts of IT investment on ASEAN economies in 2000 and the entry of China into WHO in 2001. As for the details of this model see Akira Onishi (2003, 2005).
It is well known that the increase of the export to the US and China contributed to raise the growth rate of Japanese economy. This shows Japanese economy depends on the world economy significantly. FUGI global modeling system classifies the world into 200 countries and regions, where each national/regional model is globally interdependent through international trade, financial flows, and information flows.
Here we compare the following two scenarios.
1. Increase tax scenario (Baseline)
1) Abolish half of temporary tax cut of income tax in 2005 and abolish temporary tax cut completely from 2006.
2) Raise consumption tax from 5% to 10% in 2007.
Abolishing half of temporary tax cut of income tax corresponds to increasing tax of 3.3 trillion yen and raising consumption tax to 10% amounts to tax hike of 10 trillion yen, thus altogether tax hike is 13.3 trillion yen. This is about what Japanese present government is planning to do.
2. Tax cut scenario
1) From 2006 to 2013 domestic income tax and corporation income tax are cut 5 trillion yean each, altogether 10 trillion yen tax cut. From 2014 there is no tax cut.
2) Public investment keep the level of 2006.
3) Continue the "temporary tax cut of income tax".
In both scenarios the discount rate is endogenous variable, which depends on the economic environment, price index, exchange rate, interest rate of the US and is determined judging from the past experience.
In Figure 1 real GDP is shown from 2005 to 2020. One can see that the growth of GDP from 2005 to 2020 in the tax cut scenario is three times as large as that in the tax increase scenario. This large growth of GDP helps to decrease the Debt-to-GDP ratio a lot.
Figure 1
Figure 1 Real GDP
Figure 2a
Figure 2a Real Growth Rate in Tax Increase Scenario
Figure 2b
Figure 2b Groth Rate of Real GDP in Tax Cut Scenario
In Figures 2a, b growth rates are shown in tax increase scenario and in tax cut scenario, respectively. The growth rates of the US and the whole world are also added for comparison. The variation in the growth rate comes from the cyclical economical fluctuation of the world economy. From Figure 2a one can see that the Japanese growth rate in the tax increase scenario remains as low as 1 - 2%, which is far less than that of the world average or USA. On the other hand in the tax cut scenario Japanese growth rate gradually catches up and overtakes after 2010 that of the world and that of the US.
In Figure 3 the growth rate of nominal GDP is shown in the tax increase scenario. This shows the growth rate is around 2%.
Figure 3
Figure 3 Nominal GDP Growth Rate in Tax Increase Scenario
Figure 4
Figure 4 New National Bond Issued
In Japan it is generally believed that fiscal spending cannot be increased because of the huge national debt. However, our calculation clearly shows that this is wrong. In Figure 4 the new national bond issued is shown. Although larger amount of new national bonds must be issued in the tax cut scenario than that in the tax increase scenario till 2012, the difference is far less than the amount of tax cut since the revenue increases due to the economic boom in tax cut scenario. The ratio of the national debt to the nominal GDP in the tax cut scenario is lower than that in the tax increase scenario since the nominal GDP in the tax cut scenario is far larger than that in the tax increase scenario.
In the tax cut scenario from 2014 on tax cut is abolished thus the new national bonds issued decrease rapidly and become zero after 2019 as seen in Figure 4. On the other hand in the tax increase scenario new national bonds must be issued at about the same level during period shown in Figure 4.
Similar conclusion is reached by using different macro-econometric models. Shishido and Ono (2003) used Economate, Shishido(2004) used DEMIOS, Ono(2003) used NIKKEI NEEDS and they all concluded that fiscal balance is achieved by increasing the fiscal spending.
Figure 5
Figure 5 Petroleum Price
In Figure 5 the petroleum price is shown. We find no significant difference between two scenarios. This means except speculative dealing there will be no sharp rise in the oil price.
In Figures 6 and 7 yen rate against US dollar and euro rate against US dollar are shown, respectively. In these cases we do not find significant difference between two scenarios, thus we draw a common graph for both.
Figure 6
Figure 6 Yen Rate against US Dollar
Figure 7
Figure 7 Euro Rate against US Dollar
Next let us consider the relation between Japanese economy and world economy. In Figure 8 we show the real GDP growth rate in both models.
Figure 8
Figure 8 Real GDP Growth Rate of the World
From this figure one can see prosperity of the Japanese economy helps prosperity of the world economy. One must not forget the prosperity of the world economy contributes in turn to the prosperity of the Japanese economy, that is, boomerang effect.
Thus, tax cut is not only for Japan but also for all over the world. Economic boom in Japan leads to the increase total demand, which means the increase of import. Acceleration of Japanese economic growth will certainly ease the growing trade imbalances with foreign countries, such as the US.
Our conclusions are the following.
1. The tax cut scenario leads to much larger GDP growth rate than the tax increase scenario.
2. The national debt to GDP ratio in the tax cut scenario is lower than that in the tax increase scenario.
References
Akira Onishi (2003) Integrated Global Models for Sustainable Development、Technology, Information and Systems Management Resources, Volume III, EOLLS Publisher, Oxford, UK . Knowledge for Sustainable Development: An Insight into the Encyclopedia of Life Support System, UNESCO; http://www.eolss.net.
Onishi A (2005) Futures of global interdependence (FUGI) global modeling system, Integrated global model for sustainable development, Journal of Policy Modeling, Vol. 27/1 published February 2005, pp101
Shuntaro Shishido and Seiji Ono (2003) AJER 03-12
Shuntaro Shishido (2004) Seeking the "best scenario" of Growth of Japanese Economy, Economist Aug. 24, 2004.
Seiji Ono (2003) "Theory of Japanese Economic Recovery", Nabi publishing
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