On Oct 1, Japanese Prime Minister Shinzo
Abe announced that the government would increase the consumption tax from 5 percent
to 8 percent next April so that they could support social-welfare programs. After
a few weeks, four components, “consumers’ view of employment conditions”, “consumers’
near-term readiness to buy new durable goods”, “consumers’ assessment of livelihoods”
and “consumers’ income growth”, decreased, showing consumer confidence going
down. And some economists had warned that the increasing consumption tax would
hurt consumer spending as well as hinder the economic recovery.
In my opinion, I disagree with the decision
that Japan is going to raise consumption tax next year. The first reason is
that consumers may buy many things before the tax takes effect, because the
prices of the products are cheaper, and the future consumption will go down. As
we know, investment, consumption and net export are the three important factors
to push the economy forward. Thus, the decreasing of consumption will have bad influences on the development of economy in the long term. In addition, as the economists said, it is not
advisable to have a rapid tax hike when Japan is recovering from stagnation. If
they take this measure, it will generate some bad effects and their efforts for
recovering maybe in vain. Last but not least, we learned that a rise in
consumption tax leads to deadweight losses. Although the government can gain, it
loses in general, because the losses of consumers and producers are larger than
the gain of the government. As a result, Japan will suffer deadweight losses.
Therefore, I think it is bad to increase consumption tax in Japan.
Source:
I really agree with the fact that, decrease in consumption deceases Aggregate expenditure as well as GDP be it in durable or non durable goods. And for the case of China, we see as the case stands, it is still in a hole of economic stagnation and the use of Taxation will eventually make investment impossible because people will tend to save their incomes, however Government taxation does not depend on any income so, still people will still pay tax especially through the daily transactions of the basic needs. On my opinion on one side I can say that, by taxing all the goods as said by the writer, so it will eventually start spending on the way and we know that through spending on government projects, there will be a rise of the economy though with a slow move.So, by taxing goods, they also restrict importation,so it is possible that producers in China are better off though the consumers are worse off, and also the government is better of though not in a good position because consumers just spend their limited income on non durable goods which cannot stimulate the economy at a boost rate.
ReplyDeleteTherefore, on one side China is right to impose tax on all purchases because in a long run it will start spending, but also it help producers and protect other goods from importation, but only hurts the consumers.
Increasing the consumer tax is absolutely weak for Japanese whole economy. But the propose of decreasing consumer tax is to support the social welfare programs. I think remaining the social welfare programs is also very important which may affect the foundation of the regime. In some degree, I would say stable social welfare programs are more critical than the losses of consumer. So may it is one of the ways that the Japanese government has to go.
ReplyDeleteI agree with that investment, consumption and net export are the most vital materials for domestically economic growth. And I consider that it is not a perfect time for Japan to practice high taxes, because nowadays Japan is experiencing a period called 'Economic Stagnation'. More obstacles for domestic demand of consumption and investment are set, less growth of Japanese's GDP has in the long run.
ReplyDeleteJapan's approach to increasing consumption tax seems to assume that most consumption is relatively inelastic. However, this tax will decrease consumer's disposable income, and reduce consumption spending due to lower real income. The reduced spending may result in a slight increase in tax income, but an overall decrease in spending which will hurt economic growth and GDP. This approach may have ignored some of these repercussions. I think that a more moderate increase in the tax rate could have drawn in a comparable amount of income--since consumption would not decrease as much--while still keeping consumption spending at a higher level than with an 8% tax.
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DeleteIt is my personal opinion that the world today as a whole, is a rather credit friendly place, perhaps too friendly. What I mean is that i believe it has become far too common for people, companies, governments to borrow too much money and spend more than they have. Yes I understand that there is a useful place for it, business' need to borrow to expand for example, to some extent, people may need to borrow to help them buy a home for example, to some extent, and sure there may be times in the economic cycle where government needs to borrow to spend to, for instance pull the economy out of recession, again though to some extent. However though, credit does not need to be used to fill a closet with shoes or whatever else people do to run up so much credit,i don't know maybe going to a private university! My point is, there is nothing wrong with people not spending all of their money or more than they have and actually saving. This higher consumption tax should increase savings in the country. Now I understand that in many places especially the U.S, it's pointless to save money because its so cheap, but this subject would take us down a long complex path. Do I think QE is entirely a bad thing? No i don't but too much of it could be a very bad thing. How much is too much? I don't know, if i did i'd be working for the FED but im not. However in sticking with my subject QE for example is a policy that has taken the incentive out of saving money essentially.
I think saving money is something thats important for people to do, i can't specifically say how much saving someone should do but QE doesn't encourage adequate levels in my eyes, so I'm not completely sold that the consumption tax increase in Japan will be as bad as you guys may think.