The plan in Japan is to raise the consumption tax to 8% next year and 10% in October 2015, a researcher at Kingston University looks at the potential repercussions.
In 1997 the Japanese government engaged in some fiscal retrenchment and raised the consumption tax from three to five per cent. Soon after this policy was enacted there was a recession and a sharp increase in Japan’s government debt-to-GDP ratio.
Abe could delay the tax hikes but that carries its own risks and might deal a harsh blow to confidence in Japanese fiscal management.
